[Federal Register Volume 75, Number 217 (Wednesday, November 10, 2010)]
[Proposed Rules]
[Pages 69026-69030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-28320]
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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. 75, No. 217 / Wednesday, November 10, 2010 /
Proposed Rules
[[Page 69026]]
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
5 CFR Parts 1600, 1604, 1651, and 1690
Employee Contribution Elections and Contribution Allocations;
Uniformed Services Accounts; Death Benefits; Thrift Savings Plan
AGENCY: Federal Retirement Thrift Investment Board.
ACTION: Proposed rule with request for comments.
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SUMMARY: The Federal Retirement Thrift Investment Board (Agency)
proposes to amend its regulations to establish procedures to maintain
beneficiary participant accounts for spouse beneficiaries in accordance
with the Thrift Savings Plan Enhancement Act of 2009.
DATES: Comments must be received on or before December 10, 2010.
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: Laurissa Stokes at 202-942-1645.
SUPPLEMENTARY INFORMATION: The Agency 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)).
Congressional Authorization for Beneficiary Participant Accounts
Currently, a spouse beneficiary of a TSP participant must either
transfer his or her TSP death benefit payment to another eligible
employer plan or individual retirement account (IRA), or receive the
payment immediately. On June 22, 2009, the President signed the Thrift
Savings Plan Enhancement Act of 2009 (``the Act''), Public Law 111-31
(Division B, Title I), 123 Stat. 1776, 1853. The Act authorized the
Agency to allow a spouse of a deceased participant to retain a lump sum
death benefit payment in the TSP, subject to certain restrictions on
contributions, loans, and withdrawal elections. This proposed rule
would conform the Agency's regulations to the Act and would set forth
the rules and limitations applicable to beneficiary participant
accounts.
Establishing a Beneficiary Participant Account
The Agency will automatically establish a beneficiary participant
account upon identifying a deceased participant's spouse as a sole or
partial beneficiary eligible for a lump sum death benefit payment.
Consistent with its treatment of accounts of participants who have
separated from Federal service, the Agency will not maintain a
beneficiary participant account if the amount of the deceased
participant's vested account balance to which the spouse is entitled is
less than $200. The Agency also will not transfer this de minimus
amount to another eligible plan or pay it by electronic funds transfer.
Instead the TSP will make an immediate distribution to the spouse.
A civilian beneficiary participant account is a beneficiary
participant account that is established with a death benefit payment
from a civilian TSP participant account to which contributions were
made by or on behalf of a civilian employee (i.e. a civilian TSP
participant account). A uniformed services beneficiary participant
account is a beneficiary participant account that is established with a
death benefit payment from a TSP participant account to which
contributions were made by or on behalf of a member of the uniformed
services (i.e. a uniformed services TSP participant account).
Consistent with its treatment of accounts of participants who have
both a civilian account and a uniformed services account, the TSP will
maintain civilian beneficiary participant accounts separate from
uniformed services beneficiary participant accounts. Beneficiary
participants who acquire both a uniformed services participant account
and a civilian beneficiary participant account will receive two
separate TSP account numbers; one for the civilian beneficiary
participant account and one for the uniformed services beneficiary
participant account.
Initial Account Balance Allocation
Upon notice of a participant's death, the Agency currently
transfers all funds in a deceased participant's account to the
Government Securities Investment (G) Fund. This practice protects the
account balance from risk of incurring losses between the time the
Agency receives notice of the participant's death and the time the
Agency makes a distribution to a beneficiary. The Agency will continue
this practice even when it appears that the beneficiary is the
participant's spouse. Therefore, funds in a beneficiary participant
account will initially be allocated entirely to the G Fund regardless
of the allocation of the participant's account balance at the time of
his or her death. Once a beneficiary participant account is
established, the spouse beneficiary may redistribute the beneficiary
participant account balance among the TSP investment funds by making an
interfund transfer.
Withdrawal Options
A spouse beneficiary will be afforded the same withdrawal options
with respect to his or her beneficiary participant account that the
participant would have had with respect to his or her TSP account if
the participant was
[[Page 69027]]
living and separated from service. Accordingly, a spouse beneficiary
may elect to withdraw all or a portion of his or her beneficiary
participant account as a partial payment or as a full withdrawal, that
is in a single payment, a series of monthly payments, a life annuity,
or any combination of these options. The spouse beneficiary cannot
request loans, age-based withdrawals, or financial hardship
withdrawals.
Required Minimum Distributions
The Internal Revenue Code requires spouse beneficiaries to receive
a portion of their beneficiary participant account on or before the
later of--(1) The end of the calendar year immediately following the
calendar year in which the participant died; or (2) The end of the
calendar year in which the employee would have attained age 70\1/2\.
The Agency will ensure that the annual total payments satisfy any
applicable minimum distribution requirement of the Internal Revenue
Code by making a supplemental payment, if necessary. The Agency will
calculate minimum distributions based on the beneficiary participant
account balance and the beneficiary participant's age, using the IRS
Single Life Table, Treas. Reg. Sec. 1.401(a)(9)-9, Q&A 1.
Spousal Rights After Remarriage
Sections 8351 and 8435, Title 5 of the United States Code give
certain rights to the spouses of participants. These spousal rights are
not applicable to the spouse of a beneficiary participant. Thus, if a
beneficiary participant remarries, his or her new spouse will not have
the right to consent, notice, or any particular form of distribution
(e.g. joint and survivor annuity) with respect to withdrawals from the
beneficiary participant account.
Contributions, Transfers, and Rollovers to Beneficiary Participant
Accounts
The Thrift Savings Plan Enhancement Act of 2009 prohibits a spouse
beneficiary from making contributions or ``transfers'' (trustee-to-
trustee transfers or rollovers) to a beneficiary participant account.
Accordingly, the Agency will not accept a contribution allocation
request from a spouse beneficiary and a spouse beneficiary may not
transfer or roll over any distributions from an IRA or an eligible
employer plan into a beneficiary participant account.
A beneficiary participant may acquire multiple civilian beneficiary
participant accounts and/or multiple uniformed services beneficiary
participants if he or she remarries a Federal employee who then dies
having designated him or her as a beneficiary. Beneficiary participant
accounts cannot be combined since combining accounts requires a
transfer from one beneficiary participant account to another.
Transfers and Rollovers From Beneficiary Participant Accounts
A spouse beneficiary may transfer or roll over all or a portion of
an eligible rollover distribution (within the meaning of Internal
Revenue Code Sec. 402(c)(4)) to a traditional IRA, Roth IRA, or
eligible employer plan. A spouse beneficiary who is a current or former
Federal employee may also transfer or roll over all or a portion of an
eligible rollover distribution from a civilian beneficiary participant
account into his or her own civilian or uniformed services TSP
participant account.
A spouse beneficiary who is a current or former Federal employee
may, likewise, transfer or roll over all or a portion of an eligible
rollover distribution from a uniformed services beneficiary participant
account into a civilian or uniformed services TSP participant account.
However, a transfer of a uniformed services beneficiary participant
account to a civilian TSP participant account cannot include tax-exempt
money attributable to the combat zone exclusion. Any tax-exempt money
must remain in the uniformed services beneficiary account unless it is
transferred or rolled over to an IRA or it is transferred directly to a
uniformed services TSP participant account or other eligible employer
plan that accepts tax-exempt money.
Section 1600.31 of the Agency's regulations currently prohibits
participants from requesting incoming transfers or rollovers if they
are receiving monthly payments from their TSP accounts. For this
reason, a spouse beneficiary who is a current or former Federal
employee would not be permitted to transfer an eligible rollover
distribution from a beneficiary participant account to his or her own
TSP participant account if he or she is receiving monthly payments from
that account. The Agency proposes to remove this limitation on incoming
transfers and rollovers. Thus, a spouse beneficiary would be permitted
to transfer or roll over all or a portion of an eligible rollover
distribution from his or her beneficiary participant account to his or
her own TSP participant account even if he or she is receiving monthly
payments.
Combining a Uniformed Services Beneficiary Participant Account and a
Civilian Beneficiary Participant Account Not Permitted
The Agency's regulations currently provide that a participant may
combine his or her uniformed services account with a civilian account
through a ``transfer.'' See 5 CFR 1604.5(b). Even in the absence of
this regulatory language, combining accounts would, as practical
matter, require that one account be transferred to the other. Because
the Thrift Savings Plan Enhancement Act prohibits contributions or
transfers to a beneficiary participant account, a spouse beneficiary
cannot combine his or her uniformed services beneficiary participant
account with his or her civilian beneficiary participant account.
Death of a Beneficiary Participant
The balance of a beneficiary participant account must be disbursed
upon the death of the beneficiary participant. A beneficiary
participant may designate a beneficiary for his or her beneficiary
participant account. If the beneficiary participant does not designate
a beneficiary for his or her beneficiary participant account, the
account will be disbursed in accordance with the order of precedence
set forth at 5 CFR 1651(a)(2) through (6). No individual who is
entitled to a death benefit from a beneficiary participant account
shall be eligible to keep his or her benefit in the TSP.
A recipient of a death benefit payment from a beneficiary
participant account cannot transfer the payment to an IRA or eligible
retirement plan (including the TSP). The Internal Revenue Code permits
death benefit distributions to be rolled over only when the
distribution is ``paid to the spouse of the employee'' or the
``designated beneficiary (as defined by section 401(a)(9)(E)) of the
employee.'' 26 U.S.C. 402(c)(9) (emphasis added); 26 U.S.C. 402(c)(11)
(emphasis added). Because a beneficiary participant is not the
employee, the TSP must pay the recipient of the death benefit payment
directly and the payment will be fully taxable to that individual in
the year of distribution. 26 U.S.C. 402(a).
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
[[Page 69028]]
Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335,
100 Stat. 514, and which is administered by the Agency. It will also
affect their spouse beneficiaries.
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 Sec.
1532 is not required.
List of Subjects
5 CFR Part 1600
Government employees, Pensions, Retirement.
5 CFR Part 1604
Military personnel, Pensions, Retirement.
5 CFR Part 1651
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 1600--EMPLOYEE CONTRIBUTION 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(c), 8432(j),
8474(b)(5) and (c)(1), Thrift Savings Plan Enhancement Act of 2009,
section 102.
2. Amend Sec. 1600.31, by revising paragraph (a) to read as
follows:
Sec. 1600.31 Accounts eligible for transfer.
(a) A participant who has an open TSP account and is entitled to
receive (or receives) an eligible rollover distribution, within the
meaning of I.R.C. section 402(c)(4) (26 U.S.C. 402(c)(4)), from an
eligible employer plan or a rollover contribution, within the meaning
of I.R.C. section 408(d)(3) (26 U.S.C. 408(d)(3)), from a traditional
IRA may cause to be transferred (or transfer) that distribution into
his or her TSP account.
* * * * *
PART 1604--UNIFORMED SERVICES ACCOUNTS
3. The authority citation for part 1604 continues to read as
follows:
Authority: 5 U.S.C. 8440e, 8474(b)(5) and (c)(1).
4. Revise Sec. 1604.8 to read as follows:
Sec. 1604.8 Death benefits.
The account balance of a deceased service member will be paid as
described at 5 CFR part 1651. If a service member account contains
combat zone contributions, the death benefit payment will be made pro
rata from all sources.
PART 1651--DEATH BENEFITS
5. Revise the authority citation for part 1651 to read as follows:
Authority: 5 U.S.C. 8424(d), 8432(j), 8433(e), 8435(c)(2),
8474(b)(5), 8474(c)(1), and Sec. 109, Pub. L. 111-31,123 Stat. 1176
(5 U.S.C. 8433(e)).
6. Amend Sec. 1651.5 by revising paragraph (a) to read as follows:
Sec. 1651.5 Spouse of participant.
(a) For purposes of payment under Sec. 1651.2(a)(2) of this
chapter and establishment of beneficiary participant accounts under
Sec. 1651.19 of this chapter, the spouse of the participant is the
person to whom the participant was married on the date of death. A
person is considered to be married even if the parties are separated,
unless a court decree of divorce or annulment has been entered. State
law of the participant's domicile will be used to determine whether the
participant was married at the time of death.
* * * * *
7. Amend Sec. 1651.14 by revising paragraph (c) to read as
follows:
Sec. 1651.14 How payment is made.
* * * * *
(c) Payment to the participant's spouse. The Agency will
automatically establish a beneficiary participant account (described in
Sec. 1651.19) for any spouse beneficiary. The Agency will not maintain
a beneficiary participant account if the balance is less than $200 on
the date the beneficiary participant account is established. The Agency
also will not transfer this amount to another eligible plan or pay it
by electronic funds transfer. Instead the spouse will receive an
immediate distribution in the form of a check.
* * * * *
8. Add Sec. 1651.19 to read as follows:
Sec. 1651.19 Beneficiary participant accounts.
A beneficiary participant account may be established only for a
spouse of a deceased participant who is a sole or partial beneficiary
of the deceased participant's TSP account. Beneficiary participant
accounts are subject to the following rules and procedures:
(a) Initial investment allocation. Each beneficiary participant
account will be initially allocated 100 percent to the Government
Securities Investment (G) Fund regardless of the allocation of the
deceased participant's account balance at the time of his or her death.
A beneficiary participant may redistribute his or her beneficiary
participant account balance among the TSP investment funds by making an
interfund transfer request described in part 1601, subpart C, of this
chapter.
(b) Contributions. A beneficiary participant may not make
contributions or transfers to his or her beneficiary participant
account. The TSP will not accept a contribution allocation request
described in part 1601, subpart B of this chapter for a beneficiary
participant account.
(c) Required minimum distributions. (1) A beneficiary participant
must begin receiving annual distributions from his or her beneficiary
participant account balance on or before the later of--
(i) The end of the calendar year immediately following the calendar
year in which the participant died; or
(ii) The end of the calendar year in which the participant would
have attained age 70\1/2\.
(2) The TSP will ensure that the amount of the beneficiary
participant's annual distributions that occur after the required
minimum distribution date satisfy the applicable minimum distribution
requirements of the Internal Revenue Code. The TSP will calculate
minimum distributions based on the beneficiary participant account
balance and the beneficiary participant's age, using the IRS Single
Life Table, 26 CFR 1.401(a)(9)-9, Q&A-1.
(d) Withdrawal elections. A beneficiary participant may elect to
withdraw all or a portion of his or her beneficiary participant account
as a partial payment or as a full withdrawal, that is in a single
payment, a series of monthly payments, a life annuity, or any
combination of these options. The provisions of Sec. Sec. 1650.12,
1650.13, and 1650.14 shall apply as if all references
[[Page 69029]]
to a participant are references to a beneficiary participant and all
references to an account balance are references to a beneficiary
participant account balance.
(e) Ineligibility for certain withdrawals. A beneficiary
participant is ineligible to request the following types of withdrawals
from his or her beneficiary participant account: Age-based withdrawals
described in Sec. 1650.31 of this chapter, financial hardship
withdrawals described in Sec. 1650.32 of this chapter, or loans
described in part 1655 of this chapter. A beneficiary participant will
not be ineligible for a partial withdrawal because the deceased
participant previously elected an age-based withdrawal.
(f) Spousal rights. The spousal rights described in 5 U.S.C. 8351,
5 U.S.C. 8435, or Sec. 1650.61 of this chapter do not apply to
beneficiary participant accounts.
(g) Transfers. A beneficiary participant may request that the TSP
transfer all or a portion of an eligible rollover distribution (within
the meaning of I.R.C. section 402(c)(4)) from his or her beneficiary
participant account to traditional IRA, Roth IRA or eligible employer
plan (including a civilian or uniformed services TSP account other than
a beneficiary participant account). In order to request such a
transfer, the beneficiary participant must use the transfer form
provided by the TSP.
(h) Periodic statements. The TSP will furnish beneficiary
participants with periodic statements in a manner consistent with part
1640 of this chapter.
(i) Privacy Act. Part 1630 of this chapter shall apply with respect
to a beneficiary participant as if the beneficiary participant is a TSP
participant.
(j) Error correction. If, because of an error committed by the
Board or the TSP record keeper, a beneficiary participant's account is
not credited or charged with the investment gains or losses the account
would have received had the error not occurred, the account will be
credited subject to and in accordance with the rules and procedures set
forth in Sec. 1605.21. A beneficiary participant may submit a claim
for correction of Board or TSP record keeper error pursuant to the
procedures described in Sec. 1605.22.
(k) Court orders. Court orders relating to a civilian beneficiary
participant account or uniformed services beneficiary participant
account shall be processed pursuant to the procedures set forth in part
1653 of this chapter as if all references to a TSP participant are
references to a beneficiary participant and all references to a TSP
account or account balance are references to a beneficiary participant
account or beneficiary participant account balance. Notwithstanding any
provision of part 1653, a payee of a court-ordered distribution from a
beneficiary participant account cannot request a transfer of the court-
ordered distribution to an eligible employer plan or IRA.
(l) Death of beneficiary participant. To the extent it is not
inconsistent with this section, a beneficiary participant account shall
be disbursed upon the death of the beneficiary participant in
accordance with part 1651 as if any reference to a participant is a
reference to a beneficiary participant. For example, a beneficiary
participant may designate a beneficiary for his or her beneficiary
participant account in accordance with Sec. Sec. 1651.3 and 1651.4 of
this chapter. No individual who is entitled to a death benefit from a
beneficiary participant account shall be eligible to keep the death
benefit in the TSP or request that the TSP transfer all or a portion of
the death benefit to an IRA or eligible employer plan.
(m) Uniformed services beneficiary participant accounts. Uniformed
services beneficiary participant accounts are subject to the following
additional rules and procedures:
(1) Uniformed services beneficiary participant accounts are
established and maintained separately from civilian beneficiary
participant accounts. Beneficiary participants who have a uniformed
services beneficiary participant account and a civilian beneficiary
participant account will be issued two separate TSP account numbers. A
beneficiary participant must file separate interfund transfers and/or
withdrawal requests for each account and submit separate beneficiary
designation forms for each account;
(2) A uniformed services beneficiary participant account and a
civilian beneficiary participant account cannot be combined;
(3) If a uniformed services beneficiary participant account
contains combat zone contributions, any payments or withdrawals from
the account will be distributed pro rata from all sources;
(4) A beneficiary participant may transfer or roll over all or any
portion of an eligible rollover distribution (within the meaning of
I.R.C. section 402(c)(4)) from a uniformed services beneficiary
participant account into a civilian or uniformed services TSP
participant account. However, tax-exempt money attributable to combat
zone contributions cannot be transferred from a uniformed services
beneficiary participant account to a civilian TSP participant account.
(n) Multiple beneficiary accounts. Each beneficiary participant
account is maintained separately from all other beneficiary participant
accounts. If an individual has multiple beneficiary participant
accounts, each of the individual's beneficiary participant accounts
will have a unique account number. A beneficiary participant must file
separate interfund transfers and/or withdrawal requests and submit
separate beneficiary designation forms for each beneficiary participant
account that the TSP maintains for him or her. A beneficiary
participant account cannot be combined with another beneficiary
participant account.
PART 1690--THRIFT SAVINGS PLAN
9. The authority citation for part 1690 continues to read as
follows:
Authority: 5 U.S.C. 8474.
10. Amend Sec. 1690.1, by adding the definitions of ``Beneficiary
participant'', ``Beneficiary participant account'', ``Civilian
beneficiary participant account'', and ``Uniformed services beneficiary
participant account'', and by revising the definition of ``Plan
participant'' and ``Spouse'' in alphabetical order to read as follows:
Sec. 1690.1 Definitions.
* * * * *
Beneficiary participant means a spouse beneficiary for whom the TSP
maintains a beneficiary participant account pursuant to 5 U.S.C.
8433(e) and in accordance with 5 CFR 1651.19.
Beneficiary participant account means an account maintained
pursuant to 5 U.S.C. 8433(e) and in accordance with 5 CFR 1651.19. The
term includes both civilian beneficiary participant accounts and
uniformed services beneficiary participant accounts.
* * * * *
Civilian beneficiary participant account means a beneficiary
participant account that is established with a death benefit payment
from a TSP account to which contributions were made by or on behalf of
a civilian employee.
* * * * *
Plan participant or participant means any person with an account
(other than a beneficiary participant account) in the Thrift Savings
Plan or who would have an account (other than a beneficiary account)
but for an employing agency error.
* * * * *
Spouse means the person to whom a TSP participant is married on the
date
[[Page 69030]]
he or she signs a form on which the TSP requests spousal information,
including a spouse from whom the participant is legally separated, and
a person with whom the participant is living in a relationship that
constitutes a common law marriage in the jurisdiction in which they
live. Where a participant is seeking to reclaim an account that has
been forfeited pursuant to 5 CFR 1650.16, spouse also means the person
to whom the participant was married on the withdrawal deadline. For
purposes of 5 CFR 1651.5 and 5 CFR 1651.19, spouse also means the
person to whom the participant was married on the date of the
participant's death.
* * * * *
Uniformed services beneficiary participant account means a
beneficiary participant account that is established with a death
benefit payment from a TSP account to which contributions were made by
or on behalf of a member of the uniformed services.
* * * * *
[FR Doc. 2010-28320 Filed 11-9-10; 8:45 am]
BILLING CODE 6760-01-P