D.__FERSA_Rules.pdf

Operational Requirements Dictated by FERSA

Rules that are redundant with the Internal Revenue Code provisions that apply to section 401(a) qualified trusts have been omitted.

5 USC Section

Contributions

Some participants cannot contribute, for any given pay period, more than the "basic pay" that they earned in that pay period. Some participants must be permitted to contribute certain other types of pay such as bonuses or incentive pay.

Multiple

All participants must be permitted to make catch up contributions. 8432(a)(3)

All participants must be able to make, change the amount of, or terminate contributions at any time. 8432(b)(1)

An election to make, change the amount of, or terminate contributions must remain in effect until the participant changes or modifies it. 8432(b)(1)

All hired, transferred or rehired participants must be automatically enrolled. 8432(b)(2)

Some uniformed services participants must be automatically re-enrolled every January. 8432(b)(2)

The automatic enrollment default contribution percentage must be at least 2% and not more than 5%. 8432(b)(2)

Civilian participants receive automatic 1% immediately upon enrollment. Uniformed services participants must wait 60 days before receiving automatic 1% contributions. 8440e(e)(3)

Civilian participants receive matching contributions immediately. Uniformed services participants must wait 2 years before receive matching contributions. 8440e(e)(3)

Some uniformed services participants stop receiving matching contributions after 26 years. 8440e(e)(3)

Elections to make, change, or terminate contributions must be effective no later than the next pay period. 8432(b)(2)

Vesting periods and contribution types/amounts are dictated by FERSA. Multiple

TSP cannot accept roll-ins and transfers of money that would not have otherwise been includable in gross income (e.g., after-tax non-Roth money or tax-exempt money) 8432(j)

No transfers or contributions may be made to the Thrift Savings Fund except as provided for in FERSA. 8432(h)

Civilians who leave to perform military service must be permitted to make retroactive contribution elections This is a reference to USERRA, 38 USC 4301. USERRA rules specific to the TSP are in 5 USC 8432b.

8432(i)/8432b

Employing agencies are responsible for paying lost earnings when the participant is entitled to lost earnings because of a mistake made by the employing agency. 8432a(1)

A participant is not entitled to lost earnings on any contribution (matching, automatic, or elective) when an employing agency fails to deduct contributions from pay. 8432a(2)

Participants who leave Federal service to work for certain international organizations and then return to Federal service must be permitted to make retroactive contribution elections. Rules specific to this situation are in section 8432c.

8432c

Dep't of Treasury has authority to prescribe procedures for depositing and crediting contributions to the Thrift Savings Fund. 8432(f)

All participants must be permitted to make Roth contributions. 8432d(c)

Withdrawal Options These rules reflect proposed legislation.

Withdrawal options are limited to those described in FERSA. 8433

Separated participants must be permitted to elect any combination of a lump sump, an annuity (see below), or substantially equal payments (duration not dicated) made not less frequently than annually.

8433(b)

Active participants must be permitted to make a hardship withdrawals from the portion of the account attributable to employee contributions. 8433(h)

Active participants must be permitted to make in service withdrawals after the age of 59 1/2. 8433(h)

A participant cannot return money to the Thrift Savings Fund after it has been distributed pursuant to a withdrawal election. 8433(d)(2)

Annuities

Participants must be offered, at a minimum, the five annuity options described in 5 U.S.C. 8434(a)(2). 8434(a)(2)

Annuity options offered beyond those described in 5 U.S.C. 8434(a)(2) may be eliminated, but only if current participants retain the ability to elect the eliminated option for five years after it is eliminated.

8434(c)

An annuity cannot be purchased earlier than 90 days before it is to commence. 8434(d)(2)

Death Benefits

Death benefits must be distributed in the order of precedence set forth in 5 U.S.C. 8424(d). 8433(e)(1)/8424(d)

A "child" for purposes of distributing death benefits does not include a stepchild. 8424(e)

A beneficiary designation is valid only if it is a signed and witnessed writing received before the participant's death. 8424(d)

Spouse Beneficiaries

Beneficiaries who are spouses must be permitted to maintain all or a portion their death benefits in the TSP. 8433(e)(2)

A spouse must have the same withdrawal options as a participant except that a spouse cannot take loans and hardship withdrawals. 8433(e)(2)

A spouse cannot make contributions or rollovers to a spouse beneficiary account. 8433(e)(2)

A beneficiary of spouse cannot maintain death benefits in the TSP. 8433(e)(2)

Loans

Active participants must be permitted to borrow from their accounts. 8433(g)

The loan amount cannot exceed the amount of employee contributions and earnings on those contributions. 8433(g)

A separated participant cannot take a loan. 8433(g)

Before a loan is issued, the participant must receive a notice explaining the cost of the loan relative to other sources of financing and the lifetime cost of the loan. 8433(g)

Spousal Consent/Spousal Notification

Some participants cannot elect loans/withdrawals without spousal consent. For other participants, spousal consent is not necessary but the spouse must nevertheless be notified. Mutiple

Spousal consent/spousal notification is not required if the spouse's whereabouts cannot be determined or exceptional circumstances make it inappropriate to require spousal consent or notification. 8435(a)(2)

The default withdrawal option in the absence of spousal consent is the joint and survivor annuity described in 5 U.S.C. 8434(a)(2)(B). 8435(b)

Spousal consent for loans and hardship withdrawals is irrevocable. 8435(e)(B)

Spousal consent cannot be required if the vested account balance is $3,500 or less. This exception does not apply to loans and hardship withdrawals. 8435(g)

Court Orders, QDROS, etc. (Anti-alienation)

A participant's account balance may not be assigned, alienated, subject to execution or levy, attachment, garnishment, or other legal process except as provided in FERSA. 8437(e)

TSP must make payments pursuant to court decrees of divorce, annulment, or legal separation (or a court approved settlement incident to such decree) that expressly relate to the TSP. These are analogous to QDROs in the private sector.

8435(c)

TSP must make payment pursuant to legal process for the enforcement legal obligations to provide child support or alimony as provided section 459 of the Social Security Act (42. U.S.C. 659). 8437(e)(3)

TSP must make payments pursuant to the Department of Justice's enforcement of an order for restititution under the Mandatory Victims' Restitution Act (18 U.S.C. 3663A). 8437(e)(3)

TSP must make payments pursuant to Federal tax levies. 8437(e)(3)

TSP must make payments pursuant to court orders or legal process to enforce judgments rendered against participants who physically, sexually, or emotionally abuse a child. These must be processed on a first in, first out basis.

A court may order the purchase of a survivor annuity for the former spouses of certain deceased participants. This has only happened twice in the history of the TSP. 8435(d)(1)

Contribution Allocations and Interfund Transfers

Participants must be permited to make a contribution allocation election and/or interfund transfer election at least twice a year. 8438(d)

Some participants are defaulted into the G Fund and some participants are defaulted into an age appropriate L Fund. 8438(c)

Any participant who invests in a fund other than the G Fund must sign an acknowledgment of risk which states that he/she is not protected by the government against any losses. 8439(d)

Funds

The TSP may offer only the investment funds described in 5 U.S.C. 8438. 8438

Account Statements

Participants must be furnished on a regular basis with a periodic statement relating to the participant's account. 8439(c)(1)(A)

The periodic statements must display the amount of the investment management fees, administrative expenses, and any other fees or expenses paid with respect to each investment fund and option offered by the TSP. This is broader than the DOL's participant fee disclosure rules in 29 CFR §2550.404a-5 because "other fees and expenses" include indirect fees and expenses.

§8439 NOTE para. (b)

The periodic statements must tell participants how to access the plan's demographics report. §8439 NOTE para. (b)

Participants must be furnished on a regular basis with a descripton of the TSP's investment option covering its performance for the 5 preceding years. 8439(c)(1)(B)

Other

A participant's account must be cashed out upon separation if it is less than a certain threshold. The threshold is left to the FRTIB's discretion but must be provided in the regulations. 8433(f)