[Federal Register Volume 85, Number 230 (Monday, November 30, 2020)]
[Rules and Regulations]
[Pages 76419-76420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26339]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 
 ========================================================================
 

  Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / 
Rules and Regulations  

[[Page 76419]]


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

FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Part 1650


Methods of Withdrawing Funds From the Thrift Savings Plan

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Direct final rule.

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

SUMMARY: The Federal Retirement Thrift Investment Board (FRTIB) is 
amending its regulations to remove certain restrictions with respect to 
the election of installment payments calculated based on life 
expectancy.

DATES: This rule is effective without further action on January 11, 
2021, unless significant adverse comment is received by December 30, 
2020. If significant adverse comment is received, the FRTIB will 
publish a timely withdrawal of the rule in the Federal Register.

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: Dharmesh Vashee, 
Federal Retirement Thrift Investment Board, 77 K Street NE, Suite 1000, 
Washington, DC 20002.
     Facsimile: Comments may be submitted by facsimile at (202) 
942-1676.
    Since March 23, 2020, the FRTIB has been operating in mandatory 
telework status due to the coronavirus pandemic, which has limited the 
ability to timely monitor mail and facsimiles. Therefore, we strongly 
encourage using the Federal Rulemaking Portal to submit comments.

FOR FURTHER INFORMATION CONTACT: Austen Townsend at (202) 864-8647.

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)).

Post-Separation Withdrawals

    TSP participants who have separated from service have three basic 
methods of withdrawing money from their TSP accounts: (1) Installment 
payments; (2) single withdrawals; and (3) annuity purchases. A 
separated participant who elects to receive all or a portion of his or 
her account balance in the form of installment payments must choose the 
frequency of those payments (monthly, quarterly, or annual) and whether 
to receive fixed dollar payments or payments calculated based on life 
expectancy.

Restrictions on Life-Expectancy-Based Installment Payments

    Currently, a separated TSP participant may change the amount and 
frequency of his or her fixed dollar installment payments at any time 
throughout the year. This includes the ability of a participant to make 
a one-time election to change from installment payments calculated 
based on life expectancy to fixed dollar installment payments. However, 
under existing rules, once a participant makes an election to receive 
fixed dollar installment payments, he or she may not switch to life-
expectancy-based installment payments. In addition, although a TSP 
participant receiving installment payments may stop these payments at 
any time, if he or she stops life-expectancy-based installment 
payments, the participant may not elect to restart life-expectancy-
based installment payments at a later date.

Need for Removal of Restrictions

    Internal Revenue Service (``IRS'') rules regarding required minimum 
distributions (``RMDs'') apply to TSP participants. Under these rules, 
a TSP participant must receive RMDs beginning on April 1 of the year 
following the year in which the participant reaches age 72 and is 
separated from service and annually thereafter. However, on March 27, 
2020, the President signed the Coronavirus Aid, Relief, and Economic 
Security (CARES) Act, Public Law 116-136 (134 Stat. 281). Among other 
things, the CARES Act waives the requirement for any RMD that is 
required to be paid in 2020.
    The COVID-19 pandemic caused a steep and sudden decline in the 
stock markets and put a severe strain on many household budgets. In 
order to give time for TSP account balances to recover, as authorized 
by the CARES Act, the TSP will not send any automatic RMD payments for 
2020. However, the TSP will continue to send elected installment 
payments in 2020 unless the participant makes an affirmative election 
to stop installment payments.
    Many separated TSP participants who are required to receive RMDs 
elect to receive life-expectancy-based installment payments as a way to 
ensure they satisfy this requirement. The existing restrictions on 
life-expectancy-based installment payments put these participants in an 
untenable situation--they must either continue to receive payments and 
forego the chance to let their account balances recover, or stop their 
payments and forego the ability to restart life-expectancy-based 
payments in the future. Moreover, over the years, separated 
participants of all ages have expressed a desire for more flexibility 
to change between fixed dollar and life-expectancy-based installment 
payments. Therefore, effective January 1, 2021, the FRTIB is removing 
the restrictions on life-expectancy-based installment payments 
described above.
    The removal of these restrictions allows TSP participants who are 
eligible for installment payments to elect to receive payments based on 
life expectancy whether or not they previously started and then stopped 
installment payments. In order for a TSP participant who is currently 
receiving fixed dollar installment payments to receive installment 
payments calculated based on life expectancy, the participant must 
first stop his or her existing installment payments. The participant 
can then make a new withdrawal election to receive life-expectancy-
based installment payments. (Participants who are currently receiving 
payments based on life expectancy will continue to have the ability to 
switch to fixed dollar payments simply by requesting a

[[Page 76420]]

specific dollar amount.) This new withdrawal election is subject to the 
spousal consent rules set forth at 5 U.S.C. 8435(a)(1)(B).

Tax Implications

    The FRTIB recognizes the value of giving TSP participants more 
flexibility with respect to installment payments. However, TSP 
participants should be aware of potential tax consequences mandated by 
the Internal Revenue Code (Code) that may result from stopping 
installment payments calculated based on life expectancy.
    TSP participants who separate from service before the age of 55 and 
choose to receive installment payments may be subject to a 10% early 
withdrawal penalty under Code section 72(t). Installment payments based 
on life expectancy are an exception to the rule. However, the penalty 
can be applied retroactively if the participant does any of the 
following within five years of beginning payments or before reaching 
age 59\1/2\: (1) Stopping life-expectancy-based payments; (2) switching 
life-expectancy-based payments to payments of a fixed dollar amount; or 
(3) withdrawing money in addition to the life-expectancy based 
payments. Doing any of these things in that period of time will make 
the participant liable for the penalty tax on the payments he or she 
previously received. These tax consequences are mandated by the Code 
and are not eliminated by this FRTIB rule change.

Direct Final Rulemaking

    The FRTIB is publishing this regulation as a direct final rule. In 
a direct final rulemaking, an agency publishes its rule in the Federal 
Register along with a statement that the rule will become effective 
unless the agency receives significant adverse comment within a 
specified period.
    The content of this direct final rule relieves a restriction on a 
TSP participant's ability to make a post-separation withdrawal election 
to receive installment payments based on life expectancy. Therefore, 
pursuant to 5 U.S.C. 553, notice and comment are not required, and this 
rule may become effective after publication in the Federal Register 
without public comment.
    Nevertheless, the FRTIB appreciates that members of the public may 
have perspectives or information that could impact the FRTIB's views 
with respect to the removal of these restrictions. The FRTIB, 
therefore, is providing a 30-day public comment period, and intends to 
consider all comments submitted during that period. The FRTIB will 
withdraw the rule if it receives significant adverse comment. Comments 
that are not adverse may be considered for modifications to part 1650 
at a future date. If no significant adverse comment is received, the 
rule will become effective 40 days after publication, without 
additional notice.

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 Thrift Savings Plan, which is a Federal defined 
contribution retirement savings plan created under the Federal 
Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335, 
100 Stat. 514, and which is administered by the FRTIB.

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 General Accounting Office

    Pursuant to 5 U.S.C. 810(a)(1)(A), the FRTIB 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 in 5 CFR Part 1650

    Alimony, Claims, Government employees, Pensions, Retirement.

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

    For the reasons stated in the preamble, the FRTIB amends 5 CFR 
Chapter VI as follows:

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

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

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


0
2. Amend Sec.  1650.13 by revising paragraph (b) to read as follows:


Sec.  1650.13  Installment Payments.

* * * * *
    (b) A participant can make the following changes at any time as 
described in Sec.  1650.17(c):
    (1) A participant receiving installment payments calculated based 
on life expectancy can elect to change to fixed dollar installment 
payments;
    (2) A participant receiving installment payments based on a fixed 
dollar amount can elect to stop these payments and make a new election 
to receive installment payments calculated based on life expectancy;
    (3) A participant receiving installment payments based on a fixed 
dollar amount can elect to change the amount of his or her fixed 
payments; and
    (4) A participant receiving fixed dollar installment payments can 
elect to change the frequency of his or her installment payments.
* * * * *
[FR Doc. 2020-26339 Filed 11-25-20; 11:15 am]
BILLING CODE 6760-01-P