[Federal Register Volume 82, Number 174 (Monday, September 11, 2017)]
[Proposed Rules]
[Pages 42613-42619]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18838]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

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. 82, No. 174 / Monday, September 11, 2017 / 
Proposed Rules

[[Page 42613]]



FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Parts 1600, 1601, 1603, 1605, 1650, and 1690


Blended Retirement System

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Proposed rule.

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

SUMMARY: The Federal Retirement Thrift Investment Board (``FRTIB'') is 
proposing to amend its regulations to implement changes to the 
uniformed services' retirement system that are mandated by the National 
Defense Authorization Act for Fiscal Year 2016.

DATES: Comments must be received on or before November 13, 2017.

ADDRESSES: You may submit comments using one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov at 
Docket ID number FRTIB-2017-0006. Follow the Web site instructions for 
submitting comments.
     Facsimile: 202-942-1676.
     Mail or Hand Deliver/Courier: Office of General Counsel, 
Federal Retirement Thrift Investment Board, 77 K Street NE., Suite 
1000, Washington, DC 20002.

FOR FURTHER INFORMATION CONTACT: Brandon Ford, Attorney-Advisor, 
Federal Retirement Thrift Investment Board, Office of General Counsel, 
77 K Street NE., Suite 1000, Washington, DC 20002, 202-864-8734, 
Brandon.Ford@tsp.gov.

SUPPLEMENTARY INFORMATION: The FRTIB 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)).
    The National Defense Authorization Act for Fiscal Year 2016 (NDAA), 
Public Law 114-92, signed into law November 25, 2015, changed the 
uniformed services' retirement plan from one that relied primarily on a 
cliff-vested defined benefit to one that blends a reduced defined 
benefit with enhanced TSP benefits, continuation pay, and lump-sum 
options. The new retirement system is known as the Blended Retirement 
System (BRS). This proposed rule implements the enhanced TSP benefits 
provided by the NDAA.
    The BRS includes four major changes to the TSP portion of a service 
member's military retirement package:
    (1) Employing services will contribute an amount that equals 1% of 
each service member's monthly pay to the service member's TSP account. 
These contributions are additional compensation; they are not deducted 
from service members' basic pay. They are referred to as ``automatic'' 
contributions because the services must make them whether or not the 
service member also makes contributions from his/her basic pay.
    (2) Service members will be auto-enrolled to contribute 3% of their 
basic pay, and re-enrolled again annually if they stop making 
contributions.
    (3) Employing services will match service members' TSP 
contributions dollar for dollar on the first three percent of basic pay 
and 50 cents on the dollar for the next two percent of basic pay that 
the member contributes.
    (4) Unless the service member elects otherwise, contributions will 
be invested in an age appropriate lifecycle fund instead of the 
Government securities fund.

BRS Eligibility

    BRS covers service members who first enter a uniformed service on 
or after January 1, 2018. It also covers service members who (1) have 
completed fewer than 12 years of service (or, if in the reserve 
component, have fewer than 4,320 retirement points) as of December 31, 
2017, and (2) elect, within a certain timeframe, to transfer from the 
legacy retirement system to BRS (this process is also known as electing 
to ``opt-in'' to BRS). The employing services are responsible for 
making BRS eligibility determinations and reporting each service 
member's retirement coverage status to the TSP.

Service Automatic (1%) Contributions

Timing Restrictions

    The NDAA placed timing restrictions on the receipt of Service 
Automatic 1% Contributions to a service member's TSP account. Service 
members who first enter duty on or after January 1, 2018, cannot 
receive any Service Automatic (1%) Contributions until the first full 
pay period following the date that is 60 days after the member's Pay 
Entry Base Date (PEBD).\1\ For members who elect to transfer to the 
BRS, Service Automatic (1%) Contributions will begin the first full pay 
period following their election to transfer.
---------------------------------------------------------------------------

    \1\ PEBD is the date that denotes how much service a member has 
for the purpose of determining longevity pay rates. The Navy and 
Marine Corps refer to this as the pay entry base date, while the Air 
Force calls it simply the pay date. DoD refers to it as the basic 
pay date. The services are responsible for determining each member's 
PEBD and providing each member's PEBD to the TSP.
---------------------------------------------------------------------------

    Service Automatic (1%) Contributions must stop the first full pay 
period that is 26 years after the service member's PEBD. This rule 
applies to all BRS participants whether they entered duty on or after 
January 1, 2018, or they elected to transfer to BRS. For example, a 
member who has served six years before electing to transfer to BRS can 
receive matching contributions for only 20 years.

Vesting

    The NDAA requires each BRS participant to complete 2 years of 
military service before they are vested in their Service Automatic (1%) 
Contributions. A service member's civil service will not count toward 
the completion of that two years. Therefore, the FRTIB proposes to 
amend section 1603.1 to have separate definitions for civilian service 
and military service. The definition for civilian service will remain 
the same as it is today. Military service will be defined as service 
that is creditable under 37 U.S.C. 205, which is the provision that 
defines years of service for purposes of computing basic pay. For 
service members who elect to transfer to BRS, all military service 
completed prior to the election will count towards the vesting 
requirement. For example, if a service member has completed 3 years of 
service prior to transferring to BRS, that member will be

[[Page 42614]]

immediately vested in the Service Automatic (1%) Contributions made to 
his or her TSP account.

Enrollment and Member Contributions

Automatic Enrollment

    NDAA requires employing services to automatically enroll all 
uniformed service members who first enter service on or after January 
1, 2018. Employing services must also automatically enroll all BRS 
participants (whether they entered duty on or after January 1, 2018, or 
transferred to BRS) who separate from service and later re-enter 
service.
    The FRTIB proposes to defer automatic enrollment for BRS 
participants until the first full pay period following the date that is 
60 days after the member's PEBD because the member would not be 
eligible for Service Automatic (1%) Contributions until that date. 
Additionally, the attrition rate is high in the first 60 days of 
service and to require automatic enrollment during that period would 
result in a large number of automatic cash-outs, resulting in increased 
operational costs which are then passed along to all TSP participants.
    The Executive Director has the statutory authority to select a 
default contribution percentage rate for automatically enrolled 
participants that is no less than 2% and no more than 5%. The FRTIB 
proposes to set the default percentage rate for BRS participants at 3%. 
This is the same contribution rate at which civilian participants are 
automatically enrolled. A participant who is automatically enrolled may 
change the amount that he or she is contributing by filing a 
contribution election with his or her payroll office.
    Service members who elect to transfer to BRS will continue to make 
contributions at the rate that they were making contributions prior to 
their election to transfer. They will not be automatically enrolled. 
However, if a member who transfers to BRS separates from service and 
later re-enters service, that member will be automatically enrolled to 
contribute 3% of his or her basic pay beginning the first full pay 
period following the date that is 60 days after the member's PEBD.
    Service members who are not covered by BRS will not be 
automatically enrolled even if they separate from service and later re-
enter service.

Annual Automatic Re-Enrollment

    NDAA requires employing services to automatically re-enroll, on 
January 1st of each year, BRS participants who have declined automatic 
enrollment for a year. Accordingly, service members subject to 
automatic enrollment who terminate their contributions at any point 
during the year and do not elect to resume them by the last full pay 
period of the year will be automatically re-enrolled at a contribution 
rate of 3% as of January 1st of the following year. The employing 
services are responsible for determining which BRS participants are not 
making contributions in the last full pay period of the year.

Automatic Enrollment Refunds

    Service members who are automatically enrolled in the TSP may 
request a refund of the automatic enrollment contributions deducted 
from their basic pay (including associated earnings) within the first 
90 days of the member's first automatic enrollment contribution. 
Members who stop making contributions are not eligible for refunds of 
contributions deducted when they are automatically re-enrolled on 
January 1st because, under rules mandated by the Internal Revenue 
Service, a new 90-day refund period is not allowed unless one full 
calendar year (January through December) has passed since the member's 
last automatic enrollment contribution.
    There are very few participants who will go an entire plan year 
without any default employee contributions because they will be subject 
to automatic re-enrollment for each plan year. There are significant 
programming limitations to track the small number of members who will 
go an entire plan year without any default employee contributions. For 
these reasons, the Board has decided to disallow refunds of 
contributions associated with automatic re-enrollment.

Hardship Withdrawals and Automatic Enrollment

    Under existing IRS rules, a participant who obtains a financial 
hardship in-service withdrawal may not contribute to the TSP for a 
period of six months after the withdrawal is processed. This proposed 
regulation provides that no BRS participant will be automatically 
enrolled or re-enrolled during a six month non-contribution period. For 
example, a service member who is in a non-contribution period at the 
end of the year will not be reenrolled in January. However, if the 
member does not resume contributions after the end of the six month 
non-contribution period and consequently is not making contributions 
during the last full pay period of the year, the member's employing 
service must automatically enroll the member on January 1st of the 
subsequent year.

Affirmative Member Contribution Elections

    The TSP will not accept service member contributions from members 
who are covered by BRS until 60 days after the member's PEBD for the 
same reasons that the FRTIB proposes to defer automatic enrollment 
until 60 days after the member's PEBD.

Service Matching Contributions

Timing Restrictions

    Service Matching Contributions begin the first full pay period that 
is 2 years after the service member's PEBD. For members who elect to 
transfer to the BRS, Service Matching Contributions begin the first 
full pay period following their election to transfer. For example, a 
member who has served 1 year before electing to transfer to BRS will 
receive Service Matching Contributions beginning the first full pay 
period following their election even though 2 years have not passed 
since their PEBD.
    Service Matching Contributions must stop at the same time Service 
Automatic (1%) Contributions stop, which is the first full pay period 
that is 26 years after the service member's PEBD. This is true 
regardless of how the service member became covered by BRS.

Vesting

    All BRS participants will immediately vest in their Service 
Matching Contributions.

Repeal of Existing Matching Program for Critical Specialties

    The NDAA repeals the service matching program described in 37 
U.S.C. 211(d) as of January 1, 2018. There are no service members 
currently participating in the program. Therefore, the FRTIB proposes 
to delete all references to 37 U.S.C. 211(d).

Default Investment Fund

    A member who first enters service on or after January 1, 2018, will 
have his or her contributions invested in an age-appropriate L Fund by 
default until the member makes an affirmative contribution allocation 
that directs incoming contributions into a different fund or 
combination of funds. Likewise, if a service member who elects to 
transfer to BRS has not made either an affirmative contribution 
allocation or an interfund transfer, then any contributions made after 
becoming covered by BRS will be invested in an age-appropriate L Fund.
    If a service member who elects to transfer to BRS has made an 
interfund transfer in the past but not a contribution allocation, then 
any

[[Page 42615]]

contributions made after becoming covered by BRS will be invested in 
the G Fund. If a service member who elects to transfer to BRS has made 
an affirmative contribution allocation in the past, then any 
contributions made after becoming covered by BRS will be invested in 
accordance with the member's contribution allocation. However, if a 
member elects to transfer to BRS and has a zero account balance, 
contributions will be invested in an age-appropriate L Fund regardless 
of any past contribution allocation or interfund transfer. The 
investment of contributions made prior to becoming covered by BRS will 
remain unchanged. Uniformed service members who are not covered by BRS 
will continue to have their contributions defaulted into the G Fund.
    When an employing agency automatically re-enrolls a participant 
because they were not making contributions in the last full pay period 
of the year, the participant's contributions will be invested in the 
same manner as they were prior to re-enrollment (regardless of whether 
it was an affirmative contribution allocation or a default investment). 
Likewise, contributions of a rehired service member will also be 
invested in the fund(s) to which they were being invested prior to 
being rehired (regardless of whether the fund(s) were an affirmative 
contribution allocation or a default investment and regardless of how 
much time has passed since the rehired service member separated from 
service). However, if a re-enrolled or re-hired service member has a 
zero account balance, future contributions will be defaulted to an age-
appropriate L Fund.
    The first time a BRS participant's employing agency automatically 
enrolls them or when he or she first transfers to BRS, or as soon as 
practicable thereafter, the TSP will provide each BRS participant who 
is subject to default investment in an age-appropriate L Fund with a 
notification concerning the risk of investing.

Correction of Administrative Errors

    BRS introduces new potential errors that are not currently 
addressed in regulations. Specifically, employing services may classify 
members of the uniformed services in the wrong retirement system (i.e., 
legacy instead of BRS and vice versa). If this error occurs, it is 
possible that service members will not be automatically enrolled and 
not receive service contributions. Additionally, if this error were to 
occur, service member contributions may be invested in the wrong 
default investment fund which would require breakage calculations. 
Therefore, the FRTIB proposes to amend Part 1605 to provide the 
necessary mechanisms to correct errors related to BRS.
    If a BRS participant is misclassified by an employing agency as a 
non-BRS participant, when the misclassification is corrected, the 
participant may, under the rules of Sec.  1605.11, elect to make up 
contributions that he or she would have been eligible to make as a BRS 
participant during the period of misclassification. In addition, the 
employing service must, under the rules of Sec.  1605.11, make up 
Service Automatic (1%) Contributions and Service Matching Contributions 
on employee contributions.
    If a non-BRS participant is misclassified by an employing service 
as a BRS participant, employee contributions may remain in the 
participant's account when the misclassification is corrected. If the 
participant requests a refund of employee contributions, the employing 
service must submit a negative adjustment record to remove the funds 
under the procedure described in Sec.  1605.12. The TSP will forfeit 
all service contributions that were made to a non-BRS participant's 
account, except that an employing service may submit a negative 
adjustment record to request the return of an erroneous contribution 
that has been in the participant's account for less than one year.
    The TSP will charge the employing service for any positive breakage 
that results from an incorrect default investment. To initiate a 
breakage calculation for the uniformed service member, the employing 
service must notify the TSP that the participant is entitled to 
breakage. Notification from the employing service to the TSP that the 
participant has been misclassified will not itself trigger the TSP to 
take corrective action other than to update the participant's 
retirement system coverage.
    Finally, the FRTIB proposes to amend Section 1605.31 to reduce 
makeup civilian agency contributions by any Service Automatic (1%) 
Contributions the participant receives while in military service. 
Currently, USERRA requires civilian agencies to makeup automatic (1%) 
and matching contributions missed while a member was separated or in a 
non-pay status for military service. The regulations currently reduce 
the agency makeup matching contributions by any matching contributions 
received while performing military service. The proposed amendments 
will extend that reduction to include Service Automatic (1%) 
Contributions received while performing military service. The proposed 
amendments also provide that breakage on agency or service 
contributions will be based on the contribution allocation(s) on file 
for the participant during the period of military service.

Regulatory Flexibility Act

    I certify that this regulation will not have a significant economic 
impact on a substantial number of small entities. This regulation will 
affect Federal employees and members of the uniformed services who 
participate in the TSP.

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, and 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 2 U.S.C. 1532 is not required.

List of Subjects

5 CFR Part 1600

    Government employees, Pensions, Retirement.

5 CFR Part 1601

    Government employees, Pensions, Retirement.

5 CFR Part 1603

    Government employees, Pensions, Retirement.

5 CFR Part 1605

    Claims, Government employees, Pensions, Retirement.

5 CFR Part 1650

    Alimony, Claims, Government employees, Pensions, Retirement.

5 CFR Part 1690

    Government employees, Pensions, Retirement.

Ravindra Deo,
Executive Director, Federal Retirement Thrift Investment Board.

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

[[Page 42616]]

PART 1600--EMPLOYEE CONTRIBUTION ELECTIONS, CONTRIBUTION 
ALLOCATIONS, AND AUTOMATIC ENROLLMENT PROGRAM

0
1. The authority citation for part 1600 is revised to read as follows:

    Authority:  5 U.S.C. 8351, 8432(a), 8432(b), 8432(c), 8432(j), 
8432d, 8474(b)(5) and (c)(1), and 8440e.

0
2. Amend Sec.  1600.12 to revise paragraph (d) to read as follows:


Sec.  1600.12   Contribution elections.

* * * * *
    (d) A contribution election will take effect in accordance with the 
rules set forth in this section.
    (1) Except as provided in paragraph (d)(2) of this section, a 
contribution election will become effective no later than the first 
full pay period after it is received by the employing agency.
    (2) In the case of a uniformed service member who entered service 
on or after January 1, 2018, and who has not yet served 60 days, a 
contribution election will become effective the first full pay period 
following the date that is 60 days after the member's PEBD.
* * * * *
0
3. Add Sec.  1600.14 to subpart B to read as follows:


Sec.  1600.14  Effect of election to be covered by BRS.

    (a) If a uniformed service member elects to be covered by BRS, the 
member may make a contribution election at any time.
    (b) Eligibility to make employee contributions, and therefore to 
have Agency Matching Contributions made on the member'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 member had elected to make TSP contributions while not 
covered by BRS, the election remains effective until the member makes a 
new election.
    (d) Agency Automatic (1%) Contributions for all members covered 
under this section and, if applicable, Agency Matching Contributions 
attributable to employee contributions must begin the first full pay 
period that the transfer to BRS becomes effective.
0
3. Amend Sec.  1600.19 to revise paragraphs (a), (b)(1) introductory 
text, (b)(2) and (c) to read as follows:


Sec.  1600.19   Employing agency contributions.

    (a) Agency Automatic (1%) Contributions. Each pay period, subject 
to the limitations in paragraph (d) of this section, any agency that 
employs an individual covered by FERS or BRS must make a contribution 
to that employee's tax-deferred balance for the benefit of the 
individual equal to 1% of the basic pay paid to such employee for 
service performed during that pay period. The employing agency must 
make Agency Automatic (1%) Contributions without regard to whether the 
employee elects to make employee contributions.
    (b) Agency Matching Contributions. (1) Subject to the limitations 
in paragraph (d) of this section, any agency that employs an individual 
covered by FERS or BRS must make a contribution to the employee's tax-
deferred balance for the benefit of the employee equal to the sum of:
* * * * *
    (2) A uniformed service member is not entitled to matching 
contributions for contributions deducted from special or incentive pay 
(including bonuses).
    (c) Timing of employing agency contributions. (1) An employee 
appointed or reappointed to a position covered by FERS is immediately 
eligible to receive employing agency contributions.
    (2) A uniformed service member covered by BRS will be eligible to 
receive employing agency contributions pursuant to the following rules:
    (i) A uniformed service member who first entered service on or 
after January 1, 2018 is entitled to:
    (A) Agency Automatic (1%) Contributions beginning in the first full 
pay period following the date that is 60 days after the uniformed 
service member's PEBD and ending in the first full pay period following 
the date that is 26 years after the uniformed service member's PEBD.
    (B) Agency Matching Contributions beginning in the first full pay 
period following the date that is 2 years after the uniformed service 
member's PEBD and ending in the first full pay period following the 
date that is 26 years after the uniformed service member's PEBD.
    (ii) A uniformed service member who elects to enroll in BRS is 
entitled to:
    (A) Agency Automatic (1%) Contributions beginning in the first full 
pay period following the date the uniformed service member enrolled in 
BRS and ending in the first full pay period following the date that is 
26 years after the Uniformed service member's PEBD.
    (B) Agency Matching Contributions beginning in the first full pay 
period following the date the uniformed service member enrolled in BRS 
and ending in the first full pay period following the date that is 26 
years after the uniformed service member's PEBD.
0
4. Revise Sec.  1600.34 to read as follows:


Sec.  1600.34   Automatic enrollment program.

    (a) All newly hired civilian employees who are eligible to 
participate in the Thrift Savings Plan and those civilian employees who 
are rehired after a separation in service of 31 or more calendar days 
and who are eligible to participate in the TSP will automatically have 
3% of their basic pay contributed to the employee's traditional TSP 
balance (default employee contribution) unless, by the end of the 
employee's first pay period (subject to the agency's processing time 
frames), they elect:
    (1) To not contribute;
    (2) To contribute at some other level; or
    (3) To make Roth contributions in addition to, or in lieu of, 
traditional contributions.
    (b) All uniformed service members who either enter service on or 
after January 1, 2018 or re-enter service after a separation in service 
of 31 or more calendar days after having been covered by BRS at the 
time of separation will automatically have 3% of their basic pay 
contributed to the member's traditional TSP balance (default employee 
contribution) beginning the first full pay period following the date 
that is 60 days after the member's PEBD unless they elect by the end of 
that 60 day period:
    (1) To not contribute;
    (2) To contribute at some other level; or
    (3) To make Roth contributions in addition to, or in lieu of, 
traditional contributions.
    (c) If, for any calendar year, a uniformed service member described 
in paragraph (b) of this section does not make a contribution in the 
final full pay period of such calendar year due to the member's 
election to terminate contributions prior to the final full pay period, 
then that member will automatically have 3% of his or her basic pay 
contributed to his or her traditional TSP balance beginning the first 
full pay period of the following calendar year unless he or she makes a 
subsequent election by December 31st:
    (1) To not contribute;
    (2) To contribute at some other level;
    (3) To make Roth contributions in addition to, or in lieu of, 
traditional contributions.
0
5. Amend Sec.  1600.35 by revising the first sentence of paragraph (a) 
and adding paragraph (f) to read as follows:

[[Page 42617]]

Sec.  1600.35   Refunds of default employee contributions.

    (a) Subject to the limitations in paragraph (f) of this section, a 
participant may request a refund of any default employee contributions 
made on his or her behalf (i.e., the contributions made while under the 
automatic enrollment program) provided the request is received within 
90 days after the date that the first default employee contribution was 
processed. * * *
* * * * *
    (f) A participant may not receive a refund of default employee 
contributions made pursuant to 5 CFR 1600.34(c).
0
6. Amend Sec.  1600.37 by revising the introductory text and paragraph 
(d) to read as follows:


Sec.  1600.37   Notice.

    The Board shall furnish all new employees and all rehired employees 
covered by the automatic enrollment program, and all employees 
described in paragraph (c) of 5 CFR 1600.34, covered by the automatic 
enrollment program a notice that accurately describes:
* * * * *
    (d) The employee's ability (or inability) to request a refund of 
any default employee contributions (adjusted for allocable gains and 
losses) and the procedure to request such a refund; and
* * * * *

PART 1601--PARTICIPANTS' CHOICES OF TSP FUNDS

0
7. The authority citation for part 1601 continues to read as follows:

    Authority:  5 U.S.C. 8351, 8432d, 8438, 8474(b)(5) and (c)(1).

0
8. Revise Sec.  1601.13 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 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) The following default investment rules shall apply to civilian 
participants:
    (i) All deposits made on behalf of a civilian participant enrolled 
prior to September 5, 2015 who does not have a contribution allocation 
in effect will be invested in the G Fund. A civilian participant who is 
enrolled prior to September 5, 2015 and subsequently rehired on or 
after September 5, 2015 and has a positive account balance will be 
considered enrolled prior to September 5, 2015 for purposes of this 
paragraph; and
    (ii) All deposits made on behalf of a civilian participant first 
enrolled on or after September 5, 2015 who does not have a contribution 
allocation in effect will be invested in the age-appropriate TSP 
Lifecycle Fund;
    (iii) A civilian participant enrolled prior to September 5, 2015 
who elects for the first time to invest in a TSP Fund other than the G 
Fund must execute an acknowledgement of risk in accordance with Sec.  
1601.33;
    (4) The following default investment rules shall apply to uniformed 
services participants:
    (i) All deposits made on behalf of a uniformed services participant 
who first entered service prior to January 1, 2018, has not elected to 
be covered by BRS, and does not have a contribution allocation in 
effect will be invested in the G Fund;
    (ii) All deposits made on behalf of a uniformed services 
participant who first entered service on or after January 1, 2018 and 
who does not have a contribution allocation in effect will be invested 
in the age-appropriate TSP Lifecycle Fund;
    (iii) If a uniformed services participant makes an election to be 
covered by BRS as described in 5 CFR 1600.14 and does not have a 
contribution allocation in effect at the time of the election, then all 
deposits made after the date of such election will be invested in the 
age-appropriate TSP Lifecycle Fund. Deposits made prior to the date of 
the election will remain invested in the G Fund.
    (iv) A uniformed services participant who first entered service 
prior to January 1, 2018 and has not made an election to be covered by 
the BRS who elects for the first time to invest in a TSP Fund other 
than the G Fund must execute an acknowledgement of risk in accordance 
with Sec.  1601.33;
    (5) Once a contribution allocation becomes effective, it remains in 
effect until it is superseded by a subsequent contribution allocation 
or the participant's account balance is reduced to zero. If a rehired 
participant has a positive account balance and a contribution 
allocation in effect, then the participant's contribution allocation 
will remain in effect until a new allocation is made. If, however, the 
participant (other than a participant described in paragraph (a)(4)(i) 
of this section) has a zero account balance, then the participant's 
contributions will be allocated to the age-appropriate TSP Lifecycle 
Fund until a new allocation is made.
    (b) Effect of rejection of contribution allocation. If a 
participant does not 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.
    (c) Contribution elections. A participant may designate the amount 
or type of employee contributions he or she wishes to make to the TSP 
or may stop contributions only in accordance with 5 CFR part 1600.
0
9. Amend Sec.  1601.33 by revising the first sentence of paragraph (a) 
to read as follows:


Sec.  1601.33   Acknowledgment of risk.

    (a) Uniformed services participants who first entered service prior 
to January 1, 2018 and who have not elected to be covered by BRS and 
civilian participants who enrolled prior to September 5, 2015 must 
execute an acknowledgement of risk in order to invest in a TSP Fund 
other than the G Fund. * * *
* * * * *

PART 1603--VESTING

0
10. The authority citation for part 1603 continues to read as follows:

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

0
11. Amend paragraph (b) of Sec.  1603.1 as follows:
0
a. Amend the definition of ``Service'' by removing ``Service'' and 
adding in its place ``Civilian service''.
0
b. Add ``Military service means service that is creditable under 37 
U.S.C. 205'' in alphabetical order.
0
12. Revise Sec.  1603.2 to read as follows:


Sec.  1603.2   Basic vesting rules.

    (a) All amounts in a CSRS employee's individual account are 
immediately vested.
    (b) Except as provided in paragraph (c) of this section, all 
amounts in a FERS employee's or uniformed service member's individual 
account (including all first conversion contributions) are immediately 
vested.

[[Page 42618]]

    (c) Except as provided in paragraph (d) of this section, upon 
separation from Government service without meeting the applicable 
service requirements of Sec.  1603.3, a FERS employee's or a BRS 
uniformed service member's Agency Automatic (1%) Contributions and 
attributable earnings will be forfeited.
    (d) If a FERS employee or uniformed service member dies (or died) 
after January 7, 1988, without meeting the applicable service 
requirements set forth in Sec.  1603.3, the Agency Automatic (1%) 
Contributions and attributable earnings in his or her individual 
account are deemed vested and shall not be forfeited. If a FERS 
employee died on or before January 7, 1988, without meeting those 
service requirements, his or her Agency Automatic (1%) Contributions 
and attributable earnings are forfeited to the Thrift Savings Plan.
0
13. Amend Sec.  1603.3 to revise paragraph (a) and the introductory 
text in paragraph (b), and to add a new paragraph (c) to read as 
follows:


Sec.  1603.3   Service requirements.

    (a) Except as provided under paragraph (b) of this section, FERS 
employees will be vested in their Agency Automatic (1%) Contributions 
and attributable earnings upon separating from Government only if, as 
of their separation date, they have completed three years of civilian 
service.
    (b) FERS employees will be vested in their Agency Automatic (1%) 
Contributions and attributable earnings upon separating from Government 
service if, as of their separation date, they have completed two years 
of civilian service and they are serving in one of the following 
positions:
* * * * *
    (c) Uniformed service members who are covered by BRS will be vested 
in their Agency Automatic (1%) Contributions and attributable earnings 
upon separation from the uniformed services only if, as of their 
separation date, they have completed two years of military service.

PART 1605--CORRECTION OF ADMINISTRATIVE ERRORS

0
14. The authority citation for part 1605 continues to read as follows:

    Authority:  5 U.S.C. 8351, 8432a, 8432d, 8474(b)(5) and (c)(1). 
Subpart B also issued under section 1043(b) of Public Law 104-106, 
110 Stat. 186 and Sec.  7202(m)(2) of Public Law 101-508, 104 Stat. 
1388.

0
15. Amend paragraph (b) of Sec.  1605.1 by adding in alphabetical order 
as follows:
0
a. ``BRS participant means any member of the Uniformed Services 
described in 5 U.S.C. 8440e(e)(1).''
0
b. ``Non-BRS participant means any member of the Uniformed Services not 
described in 5 U.S.C. 8440e(e)(1).''
0
16. Amend Sec.  1605.3 to add paragraph (c) to read as follows:


Sec.  1605.3   Calculating, posting, and charging breakage on errors 
involving investment in the wrong fund.

* * * * *
    (c) If a uniformed services participant's retirement system is 
misclassified and the error results in default investment in the wrong 
fund, when the error is corrected pursuant to 5 CFR 1605.14(f)-(g), the 
TSP will charge the employing agency for any positive breakage that 
results from the incorrect default investment. The retirement 
misclassification correction received from an employing agency will not 
trigger corrective action other than to update the participant's 
retirement system coverage. To initiate a breakage calculation for the 
uniformed service member, the employing agency must notify the TSP that 
the participant is entitled to breakage.
0
17. Amend Sec.  1605.11 by revising the introductory text of paragraph 
(b) to read as follows:


Sec.  1605.11   Makeup of missed or insufficient contributions.

* * * * *
    (b) Employer makeup contributions. If an employing agency has 
failed to make Agency Automatic (1%) Contributions that are required 
under 5 U.S.C. 8432(c)(1)(A) and 5 U.S.C. 8440e(e)(3)(A), or Agency 
Matching Contributions that are required under section 8432(c)(2) and 5 
U.S.C. 8440e(e)(3)(B), the following rules apply:
* * * * *
0
18. Amend Sec.  1605.14 by adding paragraphs (f) and (g) to read as 
follows:


Sec.  1605.14   Misclassified retirement system coverage.

* * * * *
    (f) If a BRS participant is misclassified by an employing agency as 
a non-BRS participant, when the misclassification is corrected:
    (1) The participant may not elect to have the contributions made 
while classified as non-BRS removed from his or her account;
    (2) The participant may, under the rules of Sec.  1605.11, elect to 
make up contributions that he or she would have been eligible to make 
as a BRS participant during the period of misclassification;
    (3) The employing agency must, under the rules of Sec.  1605.11, 
make Agency Automatic (1%) Contributions and Agency Matching 
Contributions on employee contributions that were made while the 
participant was misclassified; and
    (4) The employing agency must submit makeup employee contributions 
on current payment records and service makeup contributions may be 
submitted on either current or late payment records.
    (g) If a non-BRS participant is misclassified by an employing 
agency as a BRS participant, when the misclassification is corrected:
    (1) Employee contributions may remain in the participant's account. 
If the participant requests a refund of employee contributions, the 
employing agency must submit a negative adjustment record to remove 
these funds under the procedure described in Sec.  1605.12.
    (2) The TSP will forfeit all agency contributions that were made to 
a non-BRS participant's account. An employing service may submit a 
negative adjustment record to request the return of an erroneous 
contribution that has been in the participant's account for less than 
one year.
0
19. Amend Sec.  1605.31 by revising paragraphs (c)(1) and (d), and by 
adding paragraph (c)(5) to read as follows:


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

* * * * *
    (c) * * *
    (1) The employee is entitled to receive the Agency Automatic (1%) 
Contributions that he or she would have received had he or she 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, subject to any reduction in 
Automatic (1%) Contributions required by paragraph (c)(5) of this 
section.
* * * * *
    (5) If the employee received uniformed services Automatic (1%) 
Contributions, the Agency Automatic (1%) Contributions will be reduced 
by the amount of the uniformed services Automatic (1%) Contributions.
* * * * *
    (d) Breakage. The employee is entitled to breakage on agency 
contributions made under paragraph (c) of this section. Breakage will 
be calculated based on the contribution allocation(s)

[[Page 42619]]

on file for the participant during the period of military service.

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

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

    Authority:  5 U.S.C. 8351, 8432d, 8433, 8434, 8435, 8474(b)(5) 
and 8474(c)(1).

0
21. Amend Sec.  1650.33 to revise the second sentence of paragraph (b) 
to read as follows:


Sec.  1650.33   Contributing to the TSP after an in-service withdrawal.

* * * * *
    (b) * * * Therefore, the participant's employing agency will 
discontinue his or her contributions (and any applicable Agency 
Matching Contributions) for six months after the agency is notified by 
the TSP; in the case of a FERS or BRS participant, Agency Automatic 
(1%) Contributions will continue. * * *

PART 1690--THRIFT SAVINGS PLAN

0
22. The authority citation for part 1690 continues to read as follows:

    Authority:  5 U.S.C. 8474.

0
23. Amend Sec.  1690.1 as follows:
0
a. Revise the definitions of Agency Automatic (1%) Contributions, 
Agency Matching Contributions, Bonus contribution, Civilian employee, 
Employer contributions, Employing agency, Uniformed service member, and 
Uniformed services.
0
b. Add definitions for BRS, BRS participant, Employee and PEBD in 
alphabetical order.


Sec.  1690.1   Definitions.

* * * * *
    Agency Automatic (1%) Contributions means any contributions made 
under 5 U.S.C. 8432(c)(1) and (c)(3). It also includes service 
automatic (1%) contributions made under 5 U.S.C. 8440e(e)(3)(A).
    Agency Matching Contributions means any contributions made under 5 
U.S.C. 8432(c)(2). It also includes service matching contributions 
under 5 U.S.C. 8440e(e)(3)(B).
* * * * *
    Bonus contributions means contributions made by a participant from 
any part of any special or incentive pay that the participant receives 
under chapter 5 of title 37.
* * * * *
    BRS means the blended retirement system as established by the 
National Defense Authorization Act for FY 2016, Public Law 114-92, 
Sec. Sec.  631-635 (2015).
    BRS participant means a TSP participant covered by BRS.
* * * * *
    Civilian employee or civilian participant means a TSP participant 
covered by the Federal Employees' Retirement System, the Civil Service 
Retirement System, or equivalent retirement plan.
* * * * *
    Employer contributions means Agency Automatic (1%) Contributions 
under 5 U.S.C. 8432(c)(1), 8432(c)(3), or 5 U.S.C. 8440e(e)(3)(A) and 
Agency Matching Contributions under 5 U.S.C. 8432(c)(2) or 5 U.S.C. 
8440e(e)(3)(B).
    Employing agency means the organization (or the payroll office that 
services the organization) that employs an individual eligible to 
contribute to the TSP and that has authority to make personnel 
compensation decisions for the individual. It includes the employing 
service for members of the uniformed services.
* * * * *
    PEBD means the pay entry base date (or pay entry basic date for 
some services), which is determined by each uniformed service and is 
used to calculate how much time in service a member has for the purpose 
of determining longevity pay rates.
* * * * *
    Uniformed service member or uniformed services participant means a 
TSP participant who is a member of the uniformed services on active 
duty or a member of the Ready Reserve in any pay status.
* * * * *
    Uniformed services means the Army, Navy, Air Force, Marine Corps, 
Coast Guard, Public Health Service Commissioned Corps, and the National 
Oceanic and Atmospheric Administration Commissioned Officer Corps.

[FR Doc. 2017-18838 Filed 9-8-17; 8:45 am]
 BILLING CODE 6760-01-P