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[House Report 106-29]
[From the U.S. Government Publishing Office]

106th Congress                                            Rept. 106-29,
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1
======================================================================

 
              FEDERAL RETIREMENT COVERAGE CORRECTIONS ACT

                                _______
                                

               February 23, 1999.--Ordered to be printed

                                _______
                                

    Mr. Burton of Indiana, from the Committee on Government Reform, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 416]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Government Reform, to whom was referred the 
bill (H.R. 416) to provide for the rectification of certain 
retirement coverage errors affecting Federal employees, and for 
other purposes, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Summary of Legislation...........................................1
 II. Background and Need for the Legislation..........................3
III. Legislative Hearings and Committee Actions.......................7
 IV. Committee Hearings and Written Testimony.........................7
  V. Explanation of the Bill.........................................13
 VI. Compliance With Rule XIII.......................................30
VII. Budget Analysis and Projections.................................30
VIII.Cost Estimate of the Congressional Budget Office................31

 IX. Specific Constitutional Authority for this Legislation..........37
  X. Committee Recommendation........................................37
 XI. Congressional Accountability Act; Public Law 104-1..............38
XII. Unfunded Mandates Refrom Act; Public Law 104-4, Sect. 423.......38
XIII.Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b).....38

XIV. Changes In Existing Law.........................................38

                    I. Short Summary of Legislation

    Through no fault of their own, thousands of Federal 
employees have been erroneously placed in the wrong Federal 
retirement system. The vast majority of these errors involve 
misclassifications in either the Federal Employees Retirement 
System (FERS) or the Civil Service Retirement System (CSRS). 
When these errors are discovered, the Office of Personnel 
Management (OPM) and other Federal agencies must correct the 
mistake by automatically enrolling misclassified employees in 
the correct system. Because corrections do not currently 
include make-whole relief, their effects are often devastating 
for the employees involved.
    The Federal Retirement Coverage Corrections Act addresses 
this problem and accomplishes a number of objectives: It 
provides comprehensive coverage of retirement coverage errors. 
Employees affected by an error are provided a status quo 
option, and employees' Thrift Savings Plan (TSP) accounts are 
made whole. Agencies are held accountable for their mistakes. 
Unfair tax consequences of corrections are prevented. To ensure 
fairness and accuracy, the bill requires centralized oversight 
of the corrections process and provides affected employees with 
administrative and judicial review. The bill protects the 
integrity of the Social Security trust funds, and it protects 
all employees from reductions in force (RIFs) to pay for the 
required remedies.
    The bill provides a consistent framework to correct all 
retirement coverage errors for employees with accounts in the 
Civil Service Retirement and Disabilities Fund (CSRDF) and also 
covers former employees, annuitants, and survivors. It extends 
the same correction options to employees in retirement systems 
for the Foreign Service and the Central Intelligence Agency.
    With two exceptions, employees may choose between the 
retirement system they were mistakenly placed in or the system 
they should have been placed in retroactively to the date of 
the error. One exception prevents employees who were 
erroneously placed in the CSRS from electing that system; they 
may, however, choose to be enrolled in the CSRS-Offset system. 
The other exception affects employees who should have been in 
Social Security only, without retirement participation, but who 
were erroneously enrolled in one of the Federal retirement 
systems. These employees may not remain in a Federal retirement 
system unless they had already vested.
    The bill adapts an Internal Revenue Service (IRS) Revenue 
Procedure, Rev. Proc. 94-62, that applies to similar mistakes 
in the private sector as a model to make whole contributions to 
employees' TSP accounts. The agencies responsible for 
retirement coverage errors bear the cost of making up lost 
earnings on employees' TSP accounts. Agencies, not employees, 
make all necessary contributions to the Civil Service 
Retirement and Disability Fund (CSRDF), Social Security trust 
funds, as well as the TSP. They also pay the reasonable costs 
of financial and legal advice employees need to make informed 
decisions under the Act. In some cases, agencies may collect 
from employees an amount equal to the refund of Social Security 
contributions due the employees.
    The bill's tax provisions prevent employees from incurring 
undue tax burdens as a result of an election under this Act.
    OPM will be required to issue regulations to ensure uniform 
implementation of the bill's provisions and to ensure that 
employees are properly informed as to the status of their 
various retirement accounts in order to make an informed 
election. Corrections under the bill are not final until 
approved by OPM. Employees may appeal corrections to the Merit 
Systems Protection Board (MSPB), and seek judicial review by 
the United States Court of Appeals for the Federal Circuit. The 
bill does not impair any right employees may have to sue for 
other damages under the Federal Tort Claims Act.
    The integrity of the Social Security trust funds is 
preserved. The bill amends the Social Security Act so CSRS-
eligible employees who choose coverage under FERS or Social 
Security may receive Social Security benefits. Current law 
excludes CSRS-eligibles from the Social Security program.

              II. Background and Need for the Legislation

    Most civil servants are covered by one of two distinctly 
different retirement systems, CSRS and FERS. The CSRS is a 
stand-alone defined benefit retirement plan that does not 
include Social Security coverage. FERS, on the other hand, is a 
three-tiered system consisting of Social Security coverage, a 
defined benefit plan, and the TSP. The TSP is a defined 
contribution plan, similar to 401(k) plans offered by many 
private employers, which is administered by the Federal 
Retirement Thrift Investment Board (Thrift Board). (CSRS 
employees who vested in CSRS before separating from the 
government for more than one year may be covered by a variant 
of the CSRS system called CSRS-Offset. A hybrid, CSRS-Offset 
also takes account of Social Security benefits to which the 
employee may be eligible.) Contributions to the TSP are an 
essential part of the FERS system because the FERS basic 
annuity is substantially lower than the CSRS annuity.
    Under CSRS, 7% of employees' basic pay is withheld from 
their pay and deposited in the CSRDF. Social Security taxes are 
not withheld, and CSRS employees are not eligible to 
participate in Social Security. CSRS employees may contribute 
up to 5% of their basic pay to the TSP, but, unlike FERS, 
agencies make no contribution on their behalf. Their CSRS 
annuity is calculated based on the average of the highest 3 
salaries earned. The salary replacement rate accrues at 1.5% 
per year for the first 5 years of service, 1.75% for the next 5 
years, and 2% for each year after the first 10. After a thirty-
year career, retiring CSRS employees would thus receive a 
pension worth approximately 56 percent of the average high 3 
years of pre-retirement salaries.
    FERS employees pay full Social Security taxes (in 1999, 
6.2% on the first $72,600) plus an amount equal to the 
difference between 7% of basic pay and the Social Security tax 
rate as the employee share of the FERS defined benefit. The 
percentage of pay employees have contributed to the TSP has 
increased gradually since 1988. Currently FERS employees 
average about 6.4%, but may contribute up to 10% of their 
salary, subject to the IRS cap (currently $10,000 per year). 
The employing agency automatically contributes at least 1% of 
basic pay to the TSP, even if the employee contributes nothing, 
and will match employee contributions up to 5%. The FERS 
benefit is also calculated based on the average of the highest 
3 salaries earned. The salary replacement rate accrues at 1% 
per year of service, which increases to 1.1% if retirement is 
after age 62. After a thirty-year career, retiring FERS 
employees would thus receive a pension worth approximately 30 
percent (33 percent at age 62 or over) of the average high 3 
years of pre-retirement salaries plus the same Social Security 
benefits payable to a similarly situated private sector 
retiree.
    The Balanced Budget Act of 1997 raised FERS and CSRS 
employee contributions by 0.5% of pay according to the 
following schedule: 0.25% beginning in January of 1999, and 
additional 0.15% in January 2000, and the final 0.10% in 
January 2001. Absent Congressional action to extend the 
additional contributions it is due to expire in January of 
2003.
    On December 31, 1983 the CSRS was closed to new 
enrollments. Effective January 1, 1984 new Federal employees 
were put into the Social Security system, and their retirement 
deductions held in a CSRS Interim account pending creation of a 
new retirement system. On January 1, 1987, FERS was 
established. In addition to their Social Security deductions 
(currently 6.2%), FERS employees also contribute an amount 
which is the difference between 7% of pay and the Social 
Security deduction.
    Since no new system existed from January of 1984 to January 
1, 1987, new hires during this period were left in limbo. After 
the creation of FERS, all employees in the CSRS Interim plan 
were to be transferred into FERS. Unfortunately, many employees 
were not transferred and were left with the erroneous belief 
that they were correctly enrolled in the CSRS. Approximately 
200,000 new Federal employees were hired during this time, and 
some as yet unknown fraction of them may have been affected.
    Other employees have also been affected by retirement 
enrollment errors. These include temporary employees who 
converted from positions for which retirement benefits were not 
available, to permanent employment status under which they 
would qualify for FERS but not CSRS. They also include 
employees re-hired after a break in service and employees with 
creditable military service. Some of these errors occurred 
after the January 1987 creation of FERS, thereby extending the 
time period during which employees may have been affected by 
enrollment errors.

                       ``CORRECTION'' PROCEDURES

    OPM has identified twelve different scenarios under which 
Federal employees might become enrolled in the wrong retirement 
system. These situations are shown on Chart 1.
    The most challenging scenarios are those that require 
moving employees between CSRS or CSRS-Offset enrollment and 
FERS enrollment. These are the errors that hold the greatest 
potential for serious financial consequences to the employees 
because of the need to establish or maintain TSP accounts.
    When agencies shift people from CSRS to FERS, the employees 
have no choice in the conversion, no matter how long they have 
worked for the government. The law does not permit anyone to 
have become enrolled in CSRS after January 1, 1984, so OPM has 
held that agencies cannot leave people in CSRS if they do not 
belong there.

                         CHART 1. ERRONEOUS RETIREMENT ENROLLMENTS--PROPOSED CORRECTIONS
----------------------------------------------------------------------------------------------------------------
                                                                 Wrongly entered into:
                                     ---------------------------------------------------------------------------
        Should have been in:                                                                    Social Security
                                             CSRS           CSRS-Offset            FERS               only
----------------------------------------------------------------------------------------------------------------
CSRS................................  (1)..............  Subtitle F, Sect.  Subtitle D, Sect.  Subtitle B, Sect.
                                                          152/153--          132/134--          114--employee
                                                          employee elects    employee elects    elects to (1)
                                                          to (1) stay in     to (1) stay in     stay or (2) move
                                                          Offset or (2)      FERS or (2)        to CSRS; make-
                                                          switch to CSRS;    switch to CSRS;    whole provisons
                                                          make-whole         if switches to     for TSP
                                                          provisons do not   Offset gives up    contributions
                                                          apply.             earnings and       apply.
                                                                             govt match and
                                                                             govt 1% in TSP,
                                                                             but keeps own
                                                                             TSP
                                                                             contributions
                                                                             and earnings;
                                                                             make-whole
                                                                             provisions do
                                                                             not apply.
CSRS-Offset.........................  Subtitle E, Sect.  (1)..............  Subtitle D, Sect.  Subtitle B, Sect.
                                       141--move                             133/135--          113--employee
                                       employee into                         employee elects    elects to (1)
                                       Offset system;                        to (1) stay in     stay or (2) move
                                       make-whole                            FERS or (2)        to CSRS-Offset;
                                       provisions do                         switch to CSRS-    make-whole
                                       not apply.                            Offset; (if        provisions for
                                                                             switch see         TSP contribution
                                                                             above).            apply.
FERS................................  Subtitle A, Sect.  Subtitle A, Sect.  (1)..............  Subtitle B, Sect.
                                       102/104/106        103/105/106                           112--employee
                                       employee elects    employee elects                       elects to (1)
                                       to (1) move to     to (1) stay in                        stay or (2) move
                                       CSRS-Offset or     CSRS-Offset or                        to FERS; make-
                                       (2) switch to      (2) switch to                         whole provisions
                                       FERS; if switch    FERS; if switch                       for TSP
                                       make-whole         make-whole                            contributions
                                       provisions for     provisions for                        apply.
                                       TSP contribution   TSP
                                       apply.             contributions
                                                          apply.
Social Security only................  Subtitle C, Sect.  Subtitle C, Sect.  Subtitle C, Sect.  (1).
                                       123/125--          122/125--          121/125--
                                       employee elects    employee elects    employee elects
                                       to move to CSRS-   to stay in CSRS-   to stay in FERS
                                       Offset or opt      Offset or opt      or opt into
                                       into Social        into Social        Social Security
                                       Security only;     Security only;     only; if not
                                       if not vested in   if not vested in   vested remove;
                                       CSRS remove; if    Offset remove;     if opt out
                                       opt out of CSRS    if opt out of      refund
                                       refund             CSRS refund        contributions in
                                       contributions in   contribtions in    excess of OASDI
                                       excess of OASDI    excess of OASDI    with interest;
                                       with interest;     with interest,     permit personal
                                       permit TSP         permit TSP         TSP deposits to
                                       deposits to        deposits to        remain in TSP;
                                       remain in TSP.     remain in TSP.     forfeit govt 1%
                                                                             and matching
                                                                             funds.
----------------------------------------------------------------------------------------------------------------
1 Not applicable.

    OPM requires agencies to take corrective actions 
immediately upon discovery of an enrollment error. Agencies 
have sometimes performed ``stealth'' corrections, where they 
simply alter personnel records, then let the affected employees 
find out about the change later. One witness at a Civil Service 
Subcommittee hearing on this issue, for example, saw a shift in 
his CSRS account balance on his payroll stub. When he called 
the personnel office, the personnel officer started the 
conversation, ``I've been dreading this call for two months * * 
*.'' Another victim of these adjustments, a 59-year old GS-7 
grandmother employed by the Department of Housing and Urban 
Development, is still facing increased Social Security 
deductions from her pay each pay period.
    The experience of two workers at the Portsmouth Naval 
Shipyard in Maine also demonstrates the difficulties faced by 
thousands of other employees. One, a 60-year old who had been 
planning on retiring at age 62, learned that he owed back 
Social Security taxes of $10,000 and would have to contribute 
$600 a month to the TSP for the rest of his working career 
because his agency placed him in the wrong retirement system. 
Because of the agency's mistake, he will also have to work 
until age 65. The other employee, who is in his mid-forties, 
owes more than $10,000 in back Social Security taxes, and only 
by jeopardizing his ability to pay for his son's college 
education will he be able to establish an adequate TSP account.
    Attempts to make employees whole through administrative 
action have been complicated by statutory restrictions. 
Reconstructing Social Security accounts is hampered by the six 
year IRS limit on repayment of old Social Security taxes. Lump 
sum deposits in TSP accounts to make up lost employee 
contributions have only recently been permitted. Until it 
adopted new regulations on January 29, 1998, the Thrift Board 
held that make-up contributions by employees could not be 
attributed to past years, but had to be counted against the 
applicable IRS deferral limit for the year in which they were 
made.

          DAMAGES TO FEDERAL EMPLOYEES FROM ENROLLMENT ERRORS

    Employees who should have been in FERS, but who were 
wrongly enrolled in either CSRS or CSRS-Offset are exposed to 
the most serious harm. These employees have not been permitted 
to participate fully in the TSP. Nor were they encouraged by 
the availability of government matching contributions to 
participate. In addition, until they are notified of the error, 
these employees believe that they are in a system that will 
provide a much higher retirement annuity upon retirement and 
structure their financial planning accordingly. Consequently, 
when the error is uncovered, their financial plans are thrown 
into disarray and they frequently find themselves with TSP 
accounts that are substantially lower than they would have been 
had the employees known they would receive only a FERS annuity.
    To compound the problem, it is simply unrealistic to expect 
that many of these employees would have the financial resources 
available to make retroactive TSP contributions. Certainly that 
would be impossible for many lower-paid Federal employees. But 
even many high-paid employees would find themselves faced with 
such difficult dilemmas as choosing between fully financing 
their own retirement or providing for their children's 
education, all because a Federal agency made an error.
    The Committee believes that the victims of these agency 
errors should be given a meaningful choice between enrollment 
in the retirement system they should have been placed in or 
continued enrollment in the erroneous system. But that 
objective cannot be achieved unless the Federal Government 
shoulders the burden of making up past employee contributions 
to the TSP. That is the very same burden the IRS's Rev. Proc. 
94-62 calls upon private employers to assume in similar 
circumstances. Private employers are required under Rev. Proc. 
94-62, to make a contribution on behalf of employees equal to 
the average contribution percentage of the employee's group, 
including any matching contributions. The Revenue Procedure 
also requires that ``the correction method should restore both 
current and former participants to the benefit levels they 
would have had if the defect had not occurred.''
    In order to implement these principles, the bill requires 
agencies to make retroactive TSP contributions for affected 
employees based upon the average contribution rates of 
appropriate TSP contributors. Agency matching contributions and 
lost earnings based upon the average investment allocations of 
TSP participants are also required.
    In the 105th Congress, the House passed H.R. 3249, a bill 
with identical rectification provisions to correct these 
retirement errors. However the Senate took no action on it.

            III. Legislative Hearings and Committee Actions

    The Committee did not hold legislative hearings on this 
bill. Rep. Joe Scarborough introduced H.R. 416 on January 19, 
1999. The bill was referred to the Committee on Government 
Reform and, in addition, to the Committee on Ways and Means on 
January 19, 1999. On February 3, 1999, the Committee on 
Government Reform considered the bill and ordered it reported 
to the House by voice vote.

              IV. Committee Hearings and Written Testimony

    The Committee has not held any hearings on this bill during 
this Congress. In the 105th Congress, however, the Subcommittee 
on the Civil Service held both an oversight hearing on this 
problem on July 31, 1997 and a legislative hearing on H.R. 
3249.
    Several employees who had been victimized by agency 
retirement coverage errors testified at the oversight hearing. 
They were: Alan White (Office of the Inspector General, 
Department of Defense), David Mangam (Army War College), Mr. 
John Gabrielli (Internal Revenue Service), and E. Barry Schrum 
(Department of Energy). Other witnesses were William E. Flynn, 
Associate Director, Retirement and Insurance Service, Office of 
Personnel Management; Sarah Hall Ingram, Associate Chief 
Counsel, Employee Benefits/ Exempt Organizations, Internal 
Revenue Service; Diane Disney,Deputy Assistant Secretary 
(Civilian Personnel), Department of Defense; and Linda Oakey-Hemphill, 
Agency Retirement Counselor, Department of the Treasury.
    Mr. Alan White reported that he was hired by the Department 
of the Air Force as a criminal investigator in August 1984, and 
had remained in CSRS through his transfer to the Inspector 
General's office in the Department of Defense. The mistake in 
his retirement enrollment was detected when he requested an 
estimate of the cost of buying CSRS credit for his military 
service. His personnel office changed his retirement enrollment 
to FERS on February 28, 1996, retroactive to his entry on duty 
in 1984. He learned about the change by mail on a Saturday, 
when his leave and earnings statement reported a drop in his 
CSRS account from $51,000 to $103. His personnel office did not 
notify him of the change until April, and both his agency and 
OPM proved unresponsive in providing guidance. Mr. White read a 
statement from Mrs. Deborah Monroe, a GS-7 program assistant in 
the Chicago office of the Department of Housing and Urban 
Development who had been in the CSRS since August of 1983 and 
was involuntarily converted to FERS in 1995. She reported that 
both her agency and OPM told her that nothing could be done to 
correct her situation.
    Mr. David Mangam of the Army War College had completed a 
military career when he accepted an overseas limited 
appointment from the Department of Defense in 1983. In 1984, he 
gained a career-conditional appointment at the Army War 
College, and was enrolled in CSRS when hired. He indicated that 
he would not have accepted the position unless he was able to 
benefit from the coverage of the CSRS, because he was 
interested in converting his military service under that 
system. The agency changed his enrollment in November of 1996 
and OPM's review fully supported the agency's action. He 
reported that the complete transition between the systems would 
require 257 pay periods--or nearly 10 years. He estimated that 
the mistake would cost him $30,000 per year, assuming 
retirement after 35 years of service. He also reported 
suffering aggravation of a diabetic condition that his doctors 
associated with the stress of the transition.
    Mr. John Gabrielli of the Internal Revenue Service's 
Buffalo, NY, office reported that he began service as a 
temporary appointee and was converted to career-conditional 
status in September 1984, at which time he was enrolled in 
CSRS. He was provided an opportunity to enroll in FERS during 
1987, but rejected it. He and four other employees were 
notified of the enrollment error on April 13, 1993, and were 
adjusted to FERS coverage, effective in May of 1991. He 
reported that he still had not received notice of what credit 
he would receive for funds transferred from his CSRS account to 
his Social Security account, and whether he would receive a 
refund of any differences. He noted that the National Treasury 
Employees Union had assisted efforts to get appropriations 
language requiring OPM to address the issue, but that OPM had 
not provided a solution to date.
    Mr. E. Barry Schrum is a criminal investigator with the 
Department of Energy's Office of Inspector General. He was 
hired in December of 1984 and enrolled in the CSRS under law 
enforcement retirement provisions. He, too, had been provided 
opportunity to elect FERS coverage in 1987, but chose to remain 
in CSRS. The Department's OIG personnel office informed him of 
the mistaken enrollment in April of 1996 and notified that he 
would be retroactively changed to FERS enrollment. That change 
was made effective in a June 25, 1996 memorandum. He testified 
that he was informed at that time that he would be able to make 
retroactive contributions to the TSP, and that he would have to 
remain continuously employed in the Federal service for eight 
years to make up the back contributions to the TSP. He 
recommended legislation that would require the agencies that 
made the mistakes to make employees whole, and submitted a 
letter from the Department of Energy attorney which claimed 
that the Department lacks the authority to compensate employees 
for these errors under current law.
    Under questioning, all of the employee witnesses asserted 
that they had little support from their agencies and virtually 
none from OPM. Two of the witnesses were parties to litigation 
in a Federal district court, after completing administrative 
review through their agencies and having an initial claim from 
Mr. White denied by the Merit Systems Protection Board. They 
reported extensive legal fees associated with the litigation 
and the administrative reviews. Mr. Gabrielli reported that he 
lacked the means to pursue resolution of his case through an 
attorney, and that he was assisted by his union.
    Mr. William E. Flynn of the Office of Personnel Management 
noted that the resolution of this problem would require actions 
of OPM, the Thrift Board, the Internal Revenue Service, the 
Social Security Administration, and the Treasury Department. He 
reported that these agencies were conducting discussions, but 
that they had not agreed on a solution to the problems 
associated with enrollment errors. He added that a 
comprehensive solution is desirable to address concerns of 
employees, former employees, annuitants, and survivors who have 
been affected by these concerns. Under questioning from Mr. 
Mica and Mr. Cummings, Mr. Flynn agreed to submit a proposal to 
resolve these problems to the Subcommittee no later than 
September 10, 1997. Mr. Flynn admitted that OPM had no idea of 
the number of individuals affected by these enrollment errors, 
and that he could not estimate the cost of correcting the 
errors throughout the Federal service.
    Ms. Sarah Hall Ingram of the Internal Revenue Service 
admitted that the range of legal and tax policy questions 
associated with correcting these errors in retirement coverage 
were complicated and unclear. The IRS administers and collects 
the FICA taxes paid to the Social Security system, and private 
employers are normally required to deposit these in a timely 
manner. Federal employers are subject to nearly identical 
requirements for payment of these taxes. Few of these 
procedures, however, are intended for situations where mistakes 
in calculating the tax obligation require correction years 
after the tax should have been paid. She also noted that the 
Internal Revenue Code restricts the amount that an employee can 
contribute to a tax-deferred retirement account, and that such 
limits might have to be amended as part of any resolution of 
these issues.
    Ms. Diane Disney reported that the Department of Defense 
had found as many as 3,100 employees of the approximately 
170,000 hired between 1984 and 1986 who mighthave been placed 
into wrong retirement systems. In reviewing those records, many of the 
CSRS classifications were correct because of previous Federal service, 
but she conceded that the Defense Finance and Accounting Service is in 
the process of correcting 500 employees' records. She noted the 
difficulties of correcting mistakes that are now more than 10 years 
old, and that some of the options essential to make employees whole are 
not authorized by current law.
    Ms. Linda Oakey-Hemphill of the Department of the Treasury 
described extensive interagency negotiations to attempt 
resolution of the issues, and reported that such concerns had 
been raised as early as 1987. She noted that the automated 
information available in personnel systems is not adequate to 
identify the enrollment errors, and does not provide adequate 
guidance for resolution of the cases. She reported that the 
Department of the Treasury had corrected as many as 600 cases 
since 1992, but could not estimate the number of additional 
errors that could remain in the system.
    The subcommittee also held a legislative hearing 
immediately before it marked up the Chairman's draft of H.R. 
3249. Witnesses at that hearing were William E. Flynn, 
Associate Director, Retirement and Insurance Service, Office of 
Personnel Management; Roger W. Mehle, Executive Director, 
Federal Retirement Thrift Investment Board; Thomas O'Rourke, 
Partner, Shaw, Bransford & O'Rourke, Washington, DC; and Daniel 
F. Geisler, President American Foreign Service Association.
    Mr. Flynn testified that the Administration strongly 
preferred legislation that it had prepared to deal with the 
problem of misclassified employees and urged the subcommittee 
to use that bill rather than the Chairman's mark as the basis 
for legislation. He contended that the Administration's bill 
represented the consensus of a number of agencies to resolve 
the myriad intricate and intertwined aspects of the problems 
created by agency errors. In his view, corrective legislation 
must meet four discrete objectives:
          (1) the remedy must demonstrate that the government 
        cares about Federal employees who have been harmed by 
        retirement coverage errors and is committed to an 
        equitable solution for these employees and their 
        families;
          (2) employees should have a choice between corrected 
        coverage and the benefit they expected to receive 
        without disturbing Social Security coverage laws;
          (3) the options provided to the employee should be 
        easy to understand; and
          (4) administrative aspects of the remedy should be 
        minimized to keep the solutions simple and timely.
He argued that the Administration's bill satisfies these 
criteria. Mr. Flynn also testified that there were 
``fundamental differences'' between the Administration's bill 
and the language under consideration by the subcommittee. Under 
both approaches, he said, employees who were erroneously placed 
in CSRS or CSRS-Offset will have the option of retroactive 
placement in FERS, but only under the subcommittee's proposal 
would individuals electing FERS coverage be entitled to a 
substantial agency-funded payment to the TSP. He pointed out 
that misclassified employees may make retroactive contributions 
to the TSP and receive matching contributions and earnings.
    Mr. Flynn acknowledged that the subcommittee's proposal is 
based upon rules applicable to defined contribution plans in 
the private sector. However, he contended that private sector 
rules were inappropriate because Federal employees may 
participate in both defined contribution and defined benefit 
plans. He also argued that government make-up contributions to 
the TSP on behalf of individuals create ``intractable'' 
problems involving cost, equity, and complexity, while the 
Administration's plan provides adequate ``make whole'' relief 
by offering CSRS or CSRS-Offset coverage as alternatives to 
FERS. According to Mr. Flynn, this approach is satisfactory 
because employees ``will always receive at least as much as 
they believed they were going to get.'' In contrast, he 
contended that the subcommittee's approach would overcompensate 
some employees and under compensate others. Finally, Mr. Flynn 
also argued that the subcommittee's approach was unnecessarily 
complex, in part because it held agencies accountable for their 
errors rather than make payments from the retirement fund.
    Mr. Mehle presented the views of the Thrift Board and 
emphasized that the Thrift Board does not take a position on 
the appropriateness of benefit levels available under the 
retirement programs or the TSP. He also noted that the Thrift 
Board first addressed the problem of misclassified employees in 
1989 when it proposed legislation to permit agency payments of 
lost earnings employees suffered when agencies failed to permit 
timely employee contributions to the TSP. That proposal was 
enacted. However Congress did not then adopt the Thrift Board's 
suggestion that it allow misclassified employees to elect to 
remain in the CSRS, even though the Board recognized then that 
the procedures it recommended would not provide an adequate 
remedy in the case of a long-standing retirement coverage 
error. In his testimony, Mr. Mehle acknowledged that many 
employees may be disadvantaged by current rules that leave them 
responsible for making up lost employee contribution, either 
because they have only a relatively short period of active 
service before retiring or because they lack the financial 
resources to make themselves whole.
    Both the Administration and subcommittee proposals, Mr. 
Mehle noted, would allow affected employees to elect coverage 
under CSRS or CSRS-Offset and predicted that most would choose 
that option. He also noted that whereas the Administration's 
proposal would simply apply existing correction law, the 
subcommittee's approach would create a new system to deal with 
misclassification errors. However, he contended that the 
subcommittee's proposal might create unintended consequences 
and impose significant administrative burdens on the Thrift 
Board. The unintended consequences largely consisted of what he 
considered disparate treatment of affected employees. He also 
argued that because the corrective mechanism under the 
subcommittee proposal differed so substantially from current 
rules, the Thrift Board would not be able to use its existing 
software or computers to perform calculations and, 
consequently, would have to contractfor that service. In 
addition, he argued that the Thrift Board would not have ready access 
to the information it would need to perform the tasks assigned to it 
under the subcommittee proposal.
    Mr. O'Rourke testified that he is an attorney in private 
practice who specializes in tax, pension, and estate issues. He 
was then representing a number of Federal employees who were 
improperly placed in the CSRS and then involuntarily switched 
to FERS. He estimates that he has been contacted by 
approximately 50 such individuals. The losses these individuals 
suffer, he stated, result from the fact that FERS participants 
will receive significantly smaller annuities than their CSRS 
counterparts and have been denied the opportunity to 
intelligently plan for a FERS retirement by building up an 
adequate TSP balance. He also described the ``anguish and 
frustration'' these retirement coverage errors have caused the 
employees who have contacted him. Two of his clients have 
suffered heart attacks, one has had a nervous breakdown as a 
result of the stress created by this problem, and a number have 
described marital problems. They have found agency personnel 
sympathetic to their plight, but impotent to provide a 
satisfactory remedy under existing law.
    Mr. O'Rourke emphasized that legislation is necessary to 
resolve the problem of misclassified employees. After reviewing 
both the Administration's proposal and the subcommittee's, Mr. 
O'Rourke concluded that the subcommittee's approach was 
preferable. He believed that both proposals took positive steps 
to protect affected employees by allowing them to choose 
retirement coverage that provides essentially the same benefits 
they thought they would earn. However, he found the 
Administration's approach unfair to individuals who, after 
being notified of the retirement coverage error and removed 
from CSRS, have attempted to mitigate their losses. In his 
view, the Administration's draft would not make such 
individuals whole and would even punish them further by 
inflicting significant financial harm on them whichever option 
they chose. Employees who choose FERS coverage would lose 
forever the earnings on contributions they could have made 
during the period of erroneous coverage. Those who elect CSRS-
Offset would be exposed to additional income taxes and penalty 
taxes based upon distributions from their existing TSP 
accounts.
    In contrast, Mr. O'Rourke testified, the subcommittee's 
approach attempts to make individuals whole and would not 
expose them to additional tax burdens. He also contended that 
the subcommittee's proposal includes a ``reasonable and 
objective mechanism'' to provide make whole relief for those 
electing FERS coverage that prevents individuals from making 
TSP investment decisions based upon hindsight, yet relieves 
them of the financial burden of correcting an error they did 
not cause.
    Nevertheless, Mr. O'Rourke criticized the subcommittee's 
draft for requiring employees to make retroactive Social 
Security contributions. In the private sector, he pointed out, 
such costs would be borne by employers, and he believed the 
Federal government should bear the same burden it imposes on 
other employers. He also faulted both proposals for not 
explicitly preserving employees' rights to relief under other 
statutes, such as the Federal Tort Claims Act and the Back Pay 
Act. This, he argued, is necessary to permit employers to 
compensate employees for all of the harm they have suffered as 
a result of these agency errors.
    Mr. Geisler testified on behalf of the American Foreign 
Service Association (AFSA). AFSA is a professional association 
for 23,000 active and retired foreign service officers and 
specialists, and it serves as the bargaining agent for foreign 
service personnel at the State Department, the Agency for 
International Development, the U.S. Information Service, the 
Commerce Department's Foreign Commercial Service, and the 
Department of Agriculture's Foreign Agricultural Service.
    In AFSA's view, employees who are victims of these agency 
errors should have real options, which requires make-whole 
relief of the kind provided in the subcommittee proposal. He 
illustrated this by citing the example of a foreign service 
officer who was erroneously placed in the Foreign Service 
Retirement and Disability System, which is analogous to CSRS, 
on January 1, 1987. This error was not discovered until August 
1997. Upon discovery, he was placed in the Foreign Service 
Pensions System (FSPS), which is similar to FERS. The agency 
credited the individual's TSP account with the automatic 1% 
agency contribution for the period of erroneous coverage, and 
will make retroactive contributions with the appropriate agency 
match. However, because the TSP is an integral part of the 
FSPS, the individual is now faced with the need to make up 10 
years' worth of contributions. And even if he makes such 
contributions, he will lose the earnings he would have realized 
on those TSP contributions had they been made over the years. 
Mr. Geisler pointed out that employees who do not have much 
discretionary income cannot reasonably be expected to 
immediately contribute years of foregone employee 
contributions. Consequently, they would be left with inadequate 
retirement coverage.
    AFSA believes the make-whole relief in the subcommittee's 
proposal permits employees the opportunity to make real 
choices. Mr. Geisler believes the averaging methods proposed in 
the subcommittee's draft benefits those on the lower end of the 
pay scale more than higher-paid employees. Nevertheless, he 
found it a fair approach because it prevents the use of ``20/20 
hindsight'' by making retroactive investments without risk and 
it helps those lower-paid employees who need it most. Under the 
subcommittee's approach, Mr. Geisler believes individuals will 
be able to choose freely the retirement system that is best 
suited for them rather than being forced to remain in the older 
system simply because they cannot afford to make prohibitively 
high TSP contributions.

       V. Explanation of the Bill as Reported: Section-by-Section

Section 1. Short Title; Table of Contents

    This act may be cited as the ``Federal Retirement Coverage 
Corrections Act.''

Section 2. Definitions

    This section defines the key terms used in the Act.
          1. ``CSRS''
          2. ``CSRDF''
          3. ``CSRS covered''
          4. ``CSRS-offset covered''
          5. ``Employee''
          6. ``Executive Director of the Federal Retirement 
        Thrift Investment Board''
          7. ``FERS''
          8. ``FERS covered''
          9. ``Government''
          10. ``OASDI taxes''
          11. ``OASDI employee tax''
          12. ``OASDI employer tax''
          13. ``OASDI trust funds''
          14. ``Period of erroneous coverage''
          15. ``Retirement coverage determination''
          16. ``Retirement coverage error''
          17. ``Social Security-only covered''
          18. ``Thrift Savings Fund''

Section 3. Applicability

    The Act applies to all errors that have not been corrected 
within one year of the occurrence of the error, regardless of 
whether the error occurred before enactment of the Act. 
EXCEPTION: The Act does not apply to any retirement coverage or 
action affecting coverage for any pay period beginning before 
January 1, 1984.

Section 4. Restriction relating to future corrections

    After the date of enactment, all retirement coverage errors 
must be corrected in accordance with the Act. No employee 
affected by a retirement coverage error can be excluded from or 
made subject to any retirement system solely for the purpose of 
correcting the error. The Act does not affect retirement 
coverage elections that are unrelated to retirement coverage 
errors. The Office of Personnel Management (OPM) will publish 
regulations that apply the Act to any employee who, other than 
under this Act, makes a voluntary election to change retirement 
coverage.

Section 5. Irrevocability of elections

    Elections made (or deemed to have been made) under this Act 
are irrevocable.

 TITLE I--DESCRIPTION OF RETIREMENT COVERAGE ERRORS TO WHICH THIS ACT 
              APPLIES AND MEASURES FOR THEIR RECTIFICATION

  Subtitle A--Employee Who Should Have Been FERS Covered, But Who Was 
        Erroneously CSRS Covered or CSRS-Offset Covered Instead

Section 101. Elections

    Subsection (101)(a). Applicability. Subtitle A applies to 
employees who should have been covered by the Federal Employees 
Retirement System (FERS), but who were erroneously enrolled in 
the Civil Service Retirement System (CSRS) or CSRS-Offset 
instead.
    Subsection (101)(b). Uncorrected Error. If the retirement 
coverage error has not been corrected at the time the employee 
is to make an election under this section, the employee may 
elect to be enrolled in FERS or to remain in (or be transferred 
to) CSRS-Offset.
    Subsection (101)(c). Corrected Error. If the retirement 
coverage error has been corrected at the time the employee is 
to make an election under this section, the employee may elect 
to be enrolled in CSRS-Offset or to remain in FERS.
    Subsection (101)(d). Default Rule. This subsection 
establishes a default rule for employees who have not made an 
election within six months after receiving the notice required 
under section 201. Under this default rule, employees will be 
deemed to have elected to remain in the system (other than 
CSRS) they are in at the time that they were required to make 
the election. This subsection also provides that employees who 
should have been covered by FERS may not elect to enroll or 
remain in CSRS rather than CSRS-Offset.
    Subsection (101)(e). Retroactive Effect. All elections 
under this section will be retroactive to the date on which the 
retirement coverage error was made.

Section 102. Effect of an election to be transferred from CSRS to FERS 
        to correct a retirement coverage error

    This section describes the disposition of contributions to 
the Civil Service Retirement and Disability Fund (CSRDF), 
transfers to the Federal Old Age and Survivors Insurance Trust 
Fund and the Federal Disability Insurance Trust Fund, referred 
to collectively as the OASDI trust funds, and makeup 
contributions to the Thrift Savings Fund if an employee elects 
to be transferred from CSRS to FERS under section 101(a)(1).
    Subsection (102)(a). Applicability. This section applies to 
employees erroneously assigned to CSRS who elect to be assigned 
to FERS.
    Subsection (102)(b). Disposition of Contributions to the 
CSRDF. Some or all of the employee and government contributions 
to the CSRDF will be transferred to the OASDI trust funds.
    Subsection (102)(b)(1). Employee Contributions. Funds will 
be transferred from the CSRDF to the OASDI trust funds equal to 
the amount of OASDI employee taxes that should have been 
withheld from the employee's pay during the period oferroneous 
coverage. Any excess contributions by the employee to the CSRDF will be 
forfeited.
    ``Excess contributions'' by the employee are defined as the 
amount by which the portion of the employee's lump-sum credit 
attributable to the period of erroneous coverage is greater 
than the sum of the amount to be transferred from the CSRDF to 
the OASDI trust funds (under subsection (b)(1)) plus the amount 
that would have been deducted from the employee's pay and 
deposited in the CSRDF for coverage under FERS if the employee 
had been enrolled in FERS during that period.

        Lump-sum credit: The term ``lump-sum credit'' is 
        defined in 5 U.S.C. Sec. 8331. It consists of (CSRS) 
        retirement deductions from the employee's basic pay, 
        plus amounts deposited by an employee covering earlier 
        service, plus interest on these deductions and 
        deposits.

    If the amount of the lump-sum credit is less than the total 
of the employee contributions that should have been made to the 
CSRDF and OASDI trust funds, the amount of the shortfall is to 
be made up by the employing agency out of amounts from which 
the agency makes employer contributions to the CSRDF and OASDI 
trust funds. To the extent that a shortfall is the result of a 
lump-sum credit received by the employee (for which the 
employee has not made the deposit required under 5 U.S.C. 
Sec. 8334(d)(1)), the employee must repay an amount equal to 
this deposit. Any shortfall required to be paid by the agency 
will be reduced (but not below zero) by the amount of any such 
deposit required of the employee. The CSRDF has the legal right 
to collect these deposits in the same manner as any other debt 
owed to the U.S. Government.
    No agency make-up payment or employee repayment of a lump-
sum credit will be required which would be attributable to 
amounts that should have been deducted under 5 U.S.C. Sec. 8422 
during the period of erroneous coverage, except to the extent 
necessary permit the transfer of funds from the CSRDF to the 
OASDI trust funds described in section 102(b)(1)(A).
    In order to be credited with service under chapter 84 of 
Title 5 of the U.S. Code, an employee who has received a lump-
sum credit must deposit into the CSRDF for the period to which 
the lump-sum credit relates an amount equal to the percentage 
of the employee's basic pay that should have been deducted 
under 5 U.S.C. Sec. 8422.
    The Director of OPM will publish regulations that permit 
section 102(b) to be applied in situations covered by other 
provisions of this Act that are not directly addressed in this 
paragraph.
    Regardless of any restrictions set forth in 5 U.S.C. 
Sec. 8424(a), employees will be permitted to make deposits to 
the CSRDF for a period of erroneous coverage and to receive 
service credit for the corresponding period of time. (This does 
not apply, however, in the case of an employee who was 
erroneously covered by FERS and remained in FERS after the 
rectification provided for under this Act).
    Subsection (102)(b)(2). Government Contributions. Funds 
will be transferred from the CSRDF to the OASDI trust funds 
equal to the amount of the OASDI employer tax that should have 
been paid during the period of erroneous coverage minus any 
amount that may be assessed under Section 6501 of the Internal 
Revenue Code of 1986 with respect to each affected employee.
    If the amount that the federal government paid to the CSRDF 
during the period of erroneous coverage was less than the 
amount that should have been paid to OASDI and CSRDF if the 
employee had been properly assigned to FERS, the employing 
agency will be required to pay the amount of the shortfall to 
the OASDI trust funds. The agency will pay any such shortfall 
from the same source of funds it normally uses to pay employer 
contributions to the CSRDF and OASDI trust funds.
    Subsection 102(c). Makeup Contributions to the Thrift 
Savings Fund. This subsection provides that the employing 
agency will make a lump-sum contribution to the Thrift Savings 
Fund to compensate affected employees for lost opportunities to 
invest in the Thrift Savings Plan (TSP). The lump-sum 
contribution will make up for employee contributions forgone 
because of the erroneous assignment of the employee to CSRS, 
lost agency automatic 1% contributions, lost agency matching 
contributions (which are to be based upon both the make-up 
contribution described in subsection 102(c)(2) and any TSP 
contributions the employee actually made (none of which would 
have been matched by the agency at the time they were made, due 
to the employee's erroneous assignment to CSRS)), and lost 
earnings on the total amount that should have been contributed 
to the TSP during the period of erroneous coverage, including 
the employer matching contributions.
    Subsection 102(c)(2). Amount Based on Average Percentage of 
Pay Contributed by Employees During Period of Erroneous 
Coverage. This subsection establishes rules for calculating the 
amount of the contribution to make up for forgone employee 
contributions. The amount contributed for each calendar year 
during the period of erroneous coverage will be equal to the 
average percentage contributed by full-time FERS-covered 
employees who contributed to the Thrift Savings Plan that year. 
If the average contribution rate is not available for a 
particular year, the average for the most recent prior year 
will be used. The amount of the make-up contribution for a year 
plus any amounts actually contributed by the employee during 
that year may not exceed any ceiling established by Title 5 of 
the United States Code or the Internal Revenue Code of 1986. 
(Title 5 limits employee contributions to 10% of base pay and 
agency contributions to an amount equal to 5% of base pay. The 
Internal Revenue Code limits employee contributions to specific 
dollar amounts ($10,000 in 1999)).
    Subsection 102(c)(3). Lost Earnings. Under this subsection, 
lost earnings are to be calculated as if all contributions had 
been timely made in each year that the employee was erroneously 
enrolled in CSRS and had been allocated among each of the TSP 
investment funds according to the rules prescribed by this Act. 
For periods during which the employee actually made 
contributions to the TSP, the make-up contributions will be 
allocated in accordance with the employee's own investment fund 
election during that period. If the employee did not make any 
contributions to the TSP during a period, the make-up 
contributions will be allocated in accordance with the average 
percentage allocation of all TSP contributions among the TSP 
funds in effect during that year. If an average allocation for 
a year is not available, the allocation for the most recent 
prior year will be used.
    Subsection 102(c)(4). Make-Up Contribution to be made in a 
Lump Sum. This subsection requires that the agency at which the 
employee is employed as of the date of the election will 
promptly pay the make-up contribution in a single lump sum. The 
Federal Thrift Investment Board will publish regulations under 
which employing agencies will notify the board as to the 
amounts owed by the agency in make-up contributions; the Board 
will calculate the earnings on those contributions; and the 
Board will notify each agency of the total amount of payments 
due from it.
    Subsection 102(c)(5). Justices and Judges; Magistrates; 
Etc. This subsection provides that Justices, Judges, and other 
employees who become subject to 5 U.S.C. Sec. 8440(a), 8440(b), 
8440(c), or 8440(d) are not entitled to a make-up contribution.
    Subsection 102(c)(6). Regulations. Regulations necessary to 
carry out this subsection will be published by the Executive 
Director of the Federal Retirement Thrift Investment Board.

Section 103. Effect of an election to be transferred from CSRS-Offset 
        to FERS to correct a retirement coverage error

    This section applies in the case of an employee who should 
have been enrolled in FERS but was mistakenly enrolled in CSRS-
Offset and who elects to be covered under FERS. In such a case, 
contributions to the CSRDF will be disposed of in accordance 
with section 102(b), disregarding the provision relating to 
transfers to the OASDI trust funds. Make-up contributions to 
the Thrift Savings Fund will be made in accordance with section 
102(c).

Section 104. Effect of an election to be transferred from CSRS to CSRS-
        Offset to correct a retirement coverage error

    This section applies in the case of an employee who should 
have been enrolled in FERS but was mistakenly enrolled in CSRS 
and who elects to be covered under CSRS-Offset. In such a case, 
the effect of the employee's election will be the same as that 
described in section 101(b)(2), except that the provisions of 
section 102(b) also will apply. In applying section 102(b), the 
provisions of 5 U.S.C. Sec. 8334(k), establishing employee and 
agency contributions under CSRS-Offset, will be substituted for 
Sec. 8422 and Sec. 8423, which, respectively, define employee 
and agency contributions to FERS.

Section 105. Effect of an election to be restored (or transferred) to 
        CSRS-Offset after having been corrected to FERS from CSRS-
        Offset (or CSRS)

    Subsection 105 (a). Applicability. This section applies 
when an employee who should have been enrolled in FERS but was 
mistakenly enrolled in CSRS or CSRS- Offset elects to be CSRS-
Offset covered after having been corrected to FERS.
    Subsection 105(b). Disposition of Contributions to the 
CSRDF. The disposition of contributions to the CSRDF will be 
governed by section 102(b) with the following exceptions: (1) 
the agency and employee will receive credit for contributions 
already paid to the OASDI trust funds; (2) the contribution 
rates for the CSRS-Offset plan will be used to determine 
amounts owed, rather than the FERS contribution rates; (3) the 
Office of Personnel Management will publish regulations to be 
used in determining the appropriate lump-sum credit for 
individuals affected by this subsection; and (4), calculations 
are to be based on the ``total period involved,'' defined as 
the period beginning with the date of the retirement coverage 
error and ending on the day before the election under this 
section becomes effective.
    Subsection 105(c). Disposition of Excess TSP Contributions. 
Government contributions to the TSP and earnings on those 
contributions will be forfeited and retained in the Thrift 
Savings Fund to defray expenses of administering the TSP. 
Employees will retain in their TSP accounts their individual 
TSP contributions and the earnings on those contributions even 
if those contributions exceed the limit applicable to employees 
covered by CSRS and CSRS-Offset.

Section 106. Effect of an election to remain FERS-covered after having 
        been corrected to FERS from CSRS-Offset or CSRS

    Subsection 106(a). Applicability. This section applies when 
an employee who should have been enrolled in FERS but was 
mistakenly enrolled in CSRS or CSRS-Offset elects to remain 
covered by FERS after having been corrected to FERS.
    Subsection 106(b). Disposition of Contributions to the 
CSRDF. The same procedures will apply as in the case of an 
employee who elects to be transferred from CSRS to FERS to 
correct a retirement coverage error (described in section 
102(b)) subject to the same condition that credit will be given 
for any sums already transferred to the OASDI trust funds for 
the period involved (as described in section 105(b)(2)).
    Subsection 106(c). Make-up Contributions to the Thrift 
Savings Fund. The same procedures will apply as in the case of 
an employee who elects to be transferred from CSRS to FERS to 
correct a retirement coverage error (as described in section 
102(c)) except that the employing agency will receive credit 
for any make-up payments already made as part of any retirement 
corrections process already carried out with respect to the 
affected employee.

  Subtitle B--Employee Who Should Have Been FERS Covered, CSRS-Offset 
Covered, or CSRS Covered, But Who Was Erroneously Social Security-Only 
                            Covered Instead

Section 111. Elections

    Subsection 111(a). Applicability. This section applies to 
an employee who should have been enrolled in one of the federal 
employee retirement systems--FERS, CSRS-Offset, or CSRS--but 
who was erroneously covered only by Social Security.
    Subsection 111(b). Uncorrected Error. If the error has not 
been corrected at the time of the election, an employee who 
should have been covered by FERS may elect to be covered by 
FERS; an employee who should have been covered by CSRS-Offset 
may elect to be covered by CSRS-Offset; and an employee who 
should have been covered by CSRS may elect to be covered by 
CSRS. Any such employees may, if they so choose, remain covered 
only by Social Security.
    Subsection 111(c). Corrected Error. No more than six months 
after the enactment, the Director of OPM will submit to 
Congress a proposal by which any employee with respect to whom 
any of the retirement coverage errors described in subsection 
111(a) had already been corrected, but under terms that were 
less advantageous to the employee than those set forth in this 
Act, will be given a reasonable opportunity to resolve their 
retirement coverage error under terms comparable to the terms 
of this Act. OPM will consult with the Executive Director of 
the Federal Retirement Thrift Investment Board and the 
Commissioner of Social Security in developing this proposal. 
Any employee who does not make an election within the required 
time will be deemed to have elected to remain covered only by 
Social Security. Elections will be retroactive to the date of 
the retirement coverage error.

Section 112. Effect of an election to become FERS covered to correct 
        the retirement coverage error

    Subsection 112(a). Applicability. This section applies to 
an employee who should have been FERS covered and elects to be 
covered by FERS as well as Social Security.
    Subsection 112(b). Make-up Contributions to the CSRDF. In 
such cases, the employing agency must pay the full amount of 
employee and employer contributions that would have been 
required under Sec. 8422 and Sec. 8423 if the employee had been 
covered by FERS during the entire period.
    Subsection 112(c). Make-up Contributions to the Thrift 
Savings Fund. The procedure for paying make-up contributions to 
the Thrift Savings Fund will be the same as in the case of an 
employee who elects to be transferred from CSRS to FERS to 
correct a retirement coverage error (as described in section 
102(c)).

Section 113. Effect of an election to become CSRS-Offset covered to 
        correct the retirement coverage error

    Subsection 113(a). Applicability. This section applies to 
an employee who should have been CSRS-Offset covered and elects 
to be covered by CSRS-Offset as well as Social Security.
    Subsection 113(b). Make-up Contributions to the CSRDF. In 
such cases, the employing agency must pay the full amount of 
employee and agency contributions required under subchapter III 
of chapter 83 of title 5 of the U.S. Code that would have been 
paid during the period of erroneous coverage if the employee 
has been covered by CSRS-Offset during that time.
    Subsection 113(c). Make-up Contributions to the Thrift 
Savings Fund. The procedure for paying make-up contributions to 
the Thrift Savings Fund will be the same as in the case of an 
employee who elects to be transferred from CSRS to FERS to 
correct a retirement coverage error (as described in section 
102(c)), except that the make-up contributions will be limited 
to 5% of pay for each year, as specified by 5 U.S.C. 
Sec. 8351(b). (Employees covered by CSRS and CSRS-Offset are 
not eligible for agency matching payments on their 
contributions to the TSP and their contributions are limited to 
5% of basic pay).

Section 114. Effect of an election to become CSRS covered to correct 
        the retirement coverage error

    Subsection 114(a). Applicability. This section applies to 
an employee who should have been CSRS covered and elects to be 
covered by CSRS.
    Subsection 114(b). Make-up Contributions to the CSRDF. The 
employing agency must make a lump-sum payment to the CSRDF 
equal to the employee and government contributions required 
under 5 U.S.C. Sec. 8334 that should have been made during the 
period of erroneous coverage. The agency is entitled to be 
reimbursed by the employee for the amount of employee OASDI 
taxes that are refundable to the employee, up to the amount of 
employee contributions to the CSRDF made by the employing 
agency on behalf of the employee. If the employee does not 
reimburse the agency as required, the agency may collect the 
amount due by reducing accrued pay, compensation, retirement 
credit or any other amount due the employee from the government 
by the amount owed to the government by the employee. The 
agency also may collect the debt by any other method provided 
by law for recovering amounts owed to the government. The head 
of the agency, however, may waive this right of recovery in 
whole or in part if he or she deems it to be in the public 
interest to do so.
    Subsection 114(c). Make-up Contributions to the Thrift 
Savings Fund. The procedure for paying make-up contributions to 
the Thrift Savings Fund will be thesame as in the case of an 
employee who elects to be transferred from CSRS to FERS to correct a 
retirement coverage error (as described in section 102(c)), except that 
the make-up contributions will be limited to 5% of pay for each year as 
specified by 5 U.S.C. Sec. 8351(b). (Employees covered by CSRS and 
CSRS-Offset are not eligible for agency matching payments on their 
contributions to the TSP and their contributions are limited to 5% of 
basic pay).

Subtitle C--Employee Who Should Have Been Social Security-Only Covered, 
  But Who Was Erroneously FERS Covered, CSRS-Offset Covered, or CSRS 
                            Covered Instead

Section 121. Uncorrected error: Employee who should be Social Security-
        only covered, but who is erroneously FERS covered instead

    Subsection 121(a). Applicability. This section applies to 
an employee who should have been covered only by Social 
Security but who was erroneously covered by FERS as well.
    Subsection 121(b). Automatic Exclusion from FERS. An 
employee who has not vested in FERS will be excluded from FERS.
    Subsection 121(c). Disposition of Employee Contributions to 
the CSRDF. The employee will receive a lump-sum credit from the 
CSRDF (as authorized by 5 U.S.C. Sec. 8424) to which he or she 
may be entitled for the period of erroneous coverage.
    Subsection 121(d). Disposition of TSP Contributions. 
Government contributions to the TSP on behalf of the employee 
are to be forfeited. Employees may retain their own 
contributions to the TSP and the earnings on those 
contributions in their TSP account.

Section 122. Uncorrected error. Employee who should be Social Security-
        only covered, but who is erroneously CSRS-Offset covered 
        instead

    Subsection 122(a). Applicability. This section applies to 
an employee who should have been covered only by Social 
Security but who was erroneously covered by CSRS-Offset 
instead.
    Subsection 122(b). Automatic Exclusion from CSRS-Offset. An 
employee who has not vested in CSRS-Offset will be excluded 
from CSRS-Offset.
    Subsection 122(c). Disposition of Employee Contributions to 
the CSRDF. The employee will receive a lump-sum credit from the 
CSRDF (as authorized by 5 U.S.C. Sec. 8342) to which he or she 
may be entitled for the period of erroneous coverage.
    Subsection 122(d). Disposition of Employee TSP 
Contributions. Employees may retain their own contributions to 
the TSP and the earnings on those contributions in their TSP 
account.

Section 123. Uncorrected error. Employee who should be Social Security-
        only covered, but who is erroneously CSRS covered instead

    Subsection 123(a). Applicability. This section applies to 
an employee who should have been covered only by Social 
Security but who was erroneously covered by CSRS instead.
    Subsection 123(b). Automatic Exclusion from CSRS. An 
employee who has not vested in CSRS will be excluded from CSRS.
    Subsection 123(c). Disposition of Contributions to the 
CSRDF. Employee and government contributions to the CSRDF will 
be disposed of in accordance with section 102(b), (governing 
the disposition of contributions in the case of an employee who 
elects to transfer from CSRS to FERS to correct a retirement 
coverage error), except that paragraphs (1)(B)(ii)(II) and 
(2)(B)(ii)(II), (governing the disposition of excess employee 
contributions and shortfalls in government contributions to the 
CSRDF, respectively) will be disregarded.
    Subsection 123(d). Disposition of Employee TSP 
Contributions. Employees may retain their own contributions to 
the TSP and the earnings on those contributions in their TSP 
account.

Section 124. Corrected error. Situations under sections 121 through 123

    No more than six months after enactment, the Director of 
OPM will submit to Congress a proposal by which any employee 
with respect to whom any of the retirement coverage errors 
described in sections 121, 122, or 123 had been corrected, 
under terms that were less advantageous to the employee than 
those set forth in this Act, will be given a reasonable 
opportunity to resolve their retirement coverage error under 
comparable terms. OPM will consult with the Executive Director 
of the Federal Retirement Thrift Investment Board and the 
Commissioner of Social Security in developing this proposal.

Section 125. Vested employees excepted from automatic exclusion

    Subsection 125(a). Employees who have vested in FERS, CSRS-
Offset, or CSRS as of the date on which the notice of a 
retirement coverage error is given will not be excluded from 
those systems.
    Subsection 125(b). Vesting. An employee has vested after 
completing at least 5 years of civilian service creditable 
under 5 U.S.C. Sec. 8332 (defining creditable service under 
CSRS) or Sec. 8411 (defining creditable service under FERS).
    Subsection 125(c). Elections. An employee who was 
erroneously covered by FERS and who has vested in that program 
may elect to remain covered by FERS or to be covered by Social 
Security only. An employee who was erroneously covered by CSRS-
Offset or CSRS and who has vested in one of these programs may 
elect to remain (or become) CSRS-Offset covered or to be 
covered only by Social Security.
    Subsection 125(d). Effect of an Election To Be Transferred 
from CSRS to CSRS Offset. The effect of an election to become 
CSRS-Offset covered after having been covered by CSRS will be 
the same as described in section 104, (governing the effect of 
an election to be transferred from CSRS to CSRS-Offset to 
correct a retirement coverage error).
    Subsection 125(e). Default Rule. If the employee does not 
make an election in the required six-month period, the employee 
will be deemed to have elected to remain FERS covered or to 
remain (or become) CSRS-Offset covered, as applicable.
    Subsection 125(f). Retroactive Effect. Elections, including 
elections by default, will be retroactive to the date of the 
retirement coverage error.
    Subsection 125(g). Special Rule in Case of Disability. If 
on the date that an employee is notified of a retirement 
coverage error, the employee is receiving disability payments 
under 5 U.S.C. chapter 83 or 84 or compensation for illness or 
injury under subchapter I of chapter 81, the employee will not 
be excluded from the retirement program if they are vested in 
that program on the date that their annuity or compensation 
terminates.
    Subsection 125(h). Notification. The notices required of 
the Office of Personnel Management under section 201 of this 
Act will include additional information pertaining to the 
situations covered by this subtitle, especially as they relate 
to the consequences of being vested or not being vested.

 Subtitle D--Employee Who Should Have Been CSRS Covered or CSRS-Offset 
         Covered, but Who Was Erroneously FERS Covered Instead

Section 131. Elections

    Subsection 131(a). Applicability. This section applies to 
employees who should have been enrolled in either CSRS or CSRS-
Offset but who were erroneously placed in FERS.
    Subsection 131(b). Uncorrected Error. If the error has not 
been corrected by the date of enactment, the employee may 
choose to be covered by the CSRS or CSRS-Offset systems, as 
appropriate, or to remain in FERS.
    Subsection 131(c). Corrected Error. If the error has 
already been corrected by the date of enactment, the employee 
may elect to become FERS covered or to remain in CSRS or CSRS-
Offset.
    Subsection 131(d). Default Rule. If the employee does not 
make an election within six months after notification, the 
employee will be deemed to have elected to remain in CSRS or 
CSRS-Offset, as applicable.
    Subsection 131(e). Retroactive Effect. Elections will be 
retroactive to the date of the retirement coverage error.

Section 132. Effect of an election to be transferred from FERS to CSRS 
        to correct a retirement coverage error

    Subsection 132(a). Applicability. This section applies when 
an employee who should have been covered by CSRS elects to be 
transferred from FERS to CSRS to correct a retirement coverage 
error.
    Subsection 132(b). Make-up Contributions to the CSRDF. The 
employing agency will make a lump-sum payment to the CSRDF 
equal to the amount by which the difference between the 
employee CSRS contributions required and the employee FERS 
contributions actually made exceeds the difference between the 
amount of the agency's actual contributions under FERS and the 
amount of agency contributions that should have been made 
during the period of erroneous coverage.
    The agency is entitled to be reimbursed by the employee for 
the amount of employee OASDI taxes that are refundable to the 
employee, up to the amount of the lump-sum payment by the 
agency to the CSRDF. If the employee does not reimburse the 
agency as required, the agency may collect the amount due by 
reducing accrued pay, compensation, retirement credit or any 
other amount due the employee from the government by the amount 
owed to the government by the employee. The agency also may 
collect the debt by any other method provided by law for 
recovering amounts owed to the government. The head of the 
agency, however, may waive this right of recovery in whole or 
in part if he or she deems it to be in the public interest to 
do so. Any amount recovered by the employing agency will be 
credited to the account from which it was originally paid.
    Subsection 132(c). Disposition Excess TSP Contributions. 
Government contributions to the TSP and earnings on those 
contributions will be forfeited and retained in the Thrift 
Savings Fund to defray expenses of administering the TSP. 
Employees may retain in their TSP accounts their individual TSP 
contributions andthe earnings on those contributions, even if 
those contributions exceed the limit applicable to employees covered by 
CSRS and CSRS-Offset.

Section 133. Effect of an election to be transferred from FERS to CSRS-
        Offset to correct a retirement coverage error.

    Subsection 133(a). Applicability. This section applies when 
an employee who should have been covered by CSRS-Offset elects 
to be transferred from FERS to CSRS-Offset to correct a 
retirement coverage error.
    Subsection 133(b). Effect of Election. The effect of this 
election is substantially the same as that described in section 
105, (governing an election to transfer to CSRS-Offset after 
having been corrected to FERS from CSRS-Offset or CSRS).

Section 134. Effect of an election to be restored to FERS after having 
        been corrected to CSRS

    Subsection 134(a). Applicability. This section applies when 
an employee who should have been covered by CSRS, but was 
erroneously placed in FERS, elects to be restored to FERS after 
having been previously corrected to CSRS.
    Subsection 134(b). Effect of Election. The effect of this 
election is substantially the same as that described in section 
102, (governing an election to be transferred from CSRS to FERS 
to correct a retirement coverage error).

Section 135. Effect of an election to be restored to FERS after having 
        been corrected to CSRS-Offset

    Subsection 135(a). Applicability. This section applies when 
an employee who should have been in the CSRS-Offset system, but 
was erroneously placed in FERS, elects to be restored to FERS 
after having been previously corrected to CSRS-Offset.
    Subsection 135(b). Effect of Election. The effect of this 
election is substantially the same as that described in section 
103, (governing an election to be transferred from CSRS-Offset 
to FERS to correct a retirement coverage error).

Section 136. Disqualification of certain individuals to whom same 
        election was previously available

    An employee who previously had an opportunity to make an 
election under 5 C.F.R. Sec. 846.204 (1997) will not be 
permitted to make an election under this subtitle.

Subtitle E--Employee Who Should Have Been CSRS-Offset Covered, but Who 
                  Was Erroneously CSRS Covered Instead

Section 141. Automatic transfer to CSRS-Offset

    Subsection 141(a). Applicability. This section applies when 
an employee who should have been in the CSRS-Offset was placed 
in CSRS instead.
    Subsection 141(b). Uncorrected Error. If the error has not 
been corrected, the employee will be transferred to CSRS-Offset 
retroactive to the date of the retirement coverage error.
    Subsection 141(c). Corrected Error. If the error has 
already been corrected, the correction will be made retroactive 
to the date of the retirement coverage error.

Section 142. Effect of transfer

    The Office of Personnel Management will issue regulations 
such that the effect of a transfer under section 141 will be 
consistent with section 104, (governing the effect of an 
election to be transferred from CSRS to CSRS-Offset to correct 
a retirement coverage error).

  Subtitle F--Employee Who Should Have Been CSRS Covered, But Who Was 
                Erroneously CSRS-Offset Covered Instead

Section 151. Elections

Subsection 151(a). Applicability. This section applies when an employee 
        who should have been covered by CSRS was erroneously placed in 
        CSRS-Offset instead.

    Subsection 151(b). Uncorrected Error. If the error has not 
been corrected at the time of the election under this section, 
the employee may choose to transfer to CSRS or to remain 
covered by CSRS-Offset.
    Subsection 151(c). Corrected Error. If at the time of an 
election under this section, the error has already been 
corrected, the employee may elect to transfer to CSRS-Offset or 
to remain covered by CSRS.
    Subsection 151(d). Default Rule. If the employee has not 
made an election by the end of the six-month period following 
notification of the retirement coverage error, the employee 
will be deemed to have elected to remain in CSRS-Offset or 
CSRS, as applicable.
    Subsection 151(e). Retroactive Effect. An election under 
this section, including an election by default, will be 
effective retroactively to the date of the retirement coverage 
error to which the election relates.

Section 152. Effect of an election to be transferred from CSRS-Offset 
        to CSRS to correct a retirement coverage error

    Section 152(a). Applicability. This section applies when an 
employee who should have been covered by CSRS elects to become 
(or to remain) covered by CSRS.
    Subsection 152(b). Make-up Contributions to the CSRDF. The 
employing agency will pay to the CSRDF a lump-sum equal to the 
amount by which the amount that should have been deducted from 
the employee's pay during the period of erroneous coverage (if 
the individual had been covered by CSRS) exceeds the amount 
that was actually deducted from the employee's pay.
    The agency is entitled to be reimbursed for the amount of 
employee OASDI taxes refundable to the employee up to the 
amount of the lump-sum payment made by the agency to the CSRDF. 
If the employee does not reimburse the agency as required, the 
agency may collect the amount due by reducing accrued pay, 
compensation, retirement credit or any other amount due the 
employee from the government by the amount owed to the 
government by the employee. The agency also may collect the 
debt by any other method provided by law for recovering amounts 
owed to the government. The head of the agency, however, may 
waive this right of recovery in whole or in part if he or she 
deems it to be in the public interest to do so. Any amount 
recovered by the employing agency will be credited to the 
account from which it was originally paid.
    When applying sections 8334(d)(1) and 8339(i), which 
require deposits to the CSRDF by employees who have received 
refunds and who wish to receive service credit for the periods 
to which the refunds pertain, no employee who has received a 
refund for a period when the employee was erroneously covered 
by CSRS-Offset will be required to deposit an amount in excess 
of the refund actually received for the period, plus interest.

Section 153. Effect of an election to be restored to CSRS-Offset after 
        having been corrected to CSRS

    Section 153(a). Applicability. This section applies in the 
case of an employee who should have been covered by CSRS, but 
who was erroneously covered by CSRS-Offset, and who elects to 
transfer to CSRS-Offset.
    Section 153(b). Disposition of Contributions to the CSRDF. 
The effect of this election is substantially the same as that 
described in section 102(b), (governing an election to be 
transferred from CSRS to FERS to correct a retirement coverage 
error), except that when applying section 102(b), the 
provisions of 5 U.S.C. Sec. 8334, (employee and agency 
contributions under CSRS-Offset) will be substituted for 
references to Sec. 8422 and Sec. 8423, which, respectively, 
define employee and agency contributions to FERS.

   Subtitle G--Additional Provisions Relating to Government Agencies

Section 161. Repayment required in certain situations

    Subsection 161(a). In General. In order to be eligible to 
make an election under this Act, an employee who has received a 
payment from the government as a result of a court order or 
settlement agreement relating to a retirement coverage error 
must repay any part of that amount that is not waived by OPM.

Section 162. Equitable sharing of amounts payable from the government 
        if more than one agency is involved

    When an employee has been employed by more than one agency 
since the date of the retirement coverage error, amounts 
required to be paid or received by the current employing agency 
(other than lost earnings on TSP accounts) under this Act are 
to be apportioned equitably among such agencies in accordance 
with regulations to be published by OPM.

Section 163. Provisions relating to the original responsible agency

    Subsection 163(a). Obligations of the Original Responsible 
Agency. The agency originally responsible for the retirement 
coverage error will be required to pay (or reimburse) employees 
for reasonable expenses they incur for financial or legal 
advice in connection with an election under this Act. The 
agency originally responsible to the retirement coverage error 
will be obligated to pay (or to reimburse any other agencies 
that pay) any amounts to the Thrift Savings Fund that replace 
lost earnings resulting from the error.
    The agency originally responsible for the retirement 
coverage error is the agency determined by OPM to have made the 
original retirement coverage error or, when the error is 
attributable to an erroneous OPM regulation, OPM itself. If the 
original responsible agency no longer exists, its successor, as 
identified by OPM, will be the original responsible agency. If 
there is no successor agency, payments required from or to the 
responsible agency are to be paid from or to the CSRDF. When 
OPM is the original responsible agency because the error was 
the result of an erroneous regulation, any amounts payable from 
OPM under this section are to be paid from the CSRDF.

                      TITLE II--GENERAL PROVISIONS

Section 201. Identification and notification requirements

    Section 201(a). In General. The Office of Personnel 
Management will publish regulations prescribing the procedures 
under which individuals affected by a retirement coverage error 
described in this Act will be notified of their rights under 
this Act. The notice will include all information necessary to 
allow the individual to make an informed decision about the 
election they are permitted to make under the Act. All errors 
existing on the effective date of the regulations mandated by 
this Act are to be corrected by December 31, 2001.

Section 202. Individual appeal rights

    Section 202(a). In General. An individual aggrieved by a 
final determination under this Act will be entitled to appeal 
that determination to the Merit Systems Protection Board under 
section 7701 of title 5 of the U.S. Code.
    Section 202(b). Notification of Appeals. The Office of 
Personnel Management will publish regulations that establish 
procedures under which individuals can appeal to that Office 
with respect to failure to receive timely notice of the 
provisions of this Act as required by Section 201.

Section 203. Information to be furnished by government agencies to 
        authorities administering this Act

    Agencies are required to provide the Director of the Office 
of Personnel Management, the Commissioner of Social Security, 
and the Executive Director of the Federal Retirement Thrift 
Investment Board any information they need to carry out their 
responsibilities under this Act.

Section 204. Social Security records

    The Commissioner of Social Security will be required to 
modify the wage records of employees affected by retirement 
coverage errors described in this Act to the extent necessary 
to carry out the purposes of this Act or the Social Security 
Act.

Section 205. Conforming amendments respecting social security coverage 
        and OASDI taxes

    Section 205(a). Social Security Coverage. This section 
amends section 210(a)(5)(H) of the Social Security Act and 
Section 3121(b)(5)(H) of the Internal Revenue Code of 1986 to 
permit Social Security payments to CSRS-eligible individuals 
who elect coverage under FERS, CSRS-Offset, or to be covered 
only by Social Security. (Current law excludes federal 
employees eligible for CSRS from coverage under Social 
Security).

Section 206. Regulations

    Subsection 206(a). In General. The Director of the Office 
of Personnel Management, the Executive Director of the Federal 
Retirement Thrift Investment Board, the Commissioner of Social 
Security, and the Secretary of the Treasury each will publish 
regulations necessary to implement this Act.
    Subsection 206(b). Matters to be Included. The regulations 
issued by the Director of OPM will, at a minimum, include 1) 
procedures for applying the provisions of this Act to the 
extent practicable to former employees, employee annuitants, 
and survivor annuitants, 2) procedures by which former spouses 
affected by the provision of this Act will be notified of its 
provisions, 3) the procedures by which any determinations under 
this Act not otherwise addressed herein will be made in 
accordance with the requirements of the Act, and 4) procedures 
by which any amounts that must be paid by an individual to the 
Government in order for him or her to make an election under 
this Act, which have not otherwise been collected, may be 
recouped by the Government through an actuarial reduction in 
the annuity or survivor annuity payable under the applicable 
federal retirement program.
    Section 206(c). Definitions. An ``annuitant'' is a person 
defined in section 8331(9) or section 8401(2) of title 5 U.S.C. 
A former employee is any person who satisfies the service 
requirements for title to a deferred annuity under chapter 83 
or 84 of title 5 U.S.C. but who has not reached the minimum age 
required to claim such annuity or who has not filed a claim.
    Section 206(d). Coordination Rule. The Director of the 
Office of Personnel Management is required to consult with the 
Administrative Office of the United States Courts, the Clerk of 
the House of Representatives, the Sergeant at Arms and 
Doorkeeper of the Senate, and other appropriate officers and 
authorities when prescribing regulations to carry out this Act.

Section 207. All elections to be approved by the Office of Personnel 
        Management

    To ensure compliance with this Act, the Office of Personnel 
Management must approve in writing all elections (other than 
default elections) under the Act.

Section 208. Additional transfers to the OASDI trust funds in certain 
        cases

    The Commissioner of Social Security is required to notify 
the Secretary of the Treasury if the payments of OASDI taxes 
under this Act are not credited to the OASDI trust funds. When 
so notified, the Secretary of the Treasury must transfer 
anamount equal to the shortfall reported by the Commissioner from the 
general fund of the Treasury to the OASDI trust funds.

Section 209. Technical and conforming amendments

    This section makes technical and conforming amendments to 
sections 8432, 8437, and 8348 of title 5 of the United States 
Code.

                      TITLE III--OTHER PROVISIONS

Section 301. Provisions to permit continued conformity of other Federal 
        retirement systems

    Section 301(a) Foreign Service. The Secretary of State is 
required to publish regulations to apply this Act to 
participants, annuitants, and survivors covered by the Foreign 
Service Retirement and Disability System or the Foreign Service 
Pension System. Grievances will be appealed to the Foreign 
Service Grievance Board. The Secretary will fulfill the 
functions assigned to the Director of OPM in the other titles 
of this Act.
    Section 301(b) Central Intelligence Agency. This section 
requires that elections like those described in this Act be 
made available to individuals covered by the retirement system 
of the Central Intelligence Agency.

Section 302. Provisions to prevent reductions in force and any unfunded 
        liability in the Civil Service Retirement and Disability Fund

    Section 302(a). Provisions to Prevent Reductions in Force. 
Agencies are prohibited from conducting reductions in force 
because of a shortfall of funds caused by payments required 
under this Act. Agencies that seek to lower personnel costs as 
a means of financing payments required under this Act in whole 
or in part are directed to achieve these savings through 
attrition and limitations on hiring.
    Section 302(b). Provisions to Prevent Unfunded Liability. 
Any additional unfunded liability in the CSRDF created by 
payments required under this Act will be amortized over a 30-
year period paid by transfers of funds from general revenues, 
as authorized by 5 U.S.C. Sec. 8348(f), (except in cases where 
the increase in unfunded liability is to be paid off by 
transfers of funds from the U.S. Postal Service or the Panama 
Canal Commission).

Section 303. Individual right of action preserved for amounts not 
        otherwise provided for under this act

    This section preserves any right of action that an 
individual may have under the Federal Tort Claims Act for 
claims that are not provided for in this Act.

                        TITLE IV--TAX PROVISIONS

Section 401. Tax provisions

    Section 401(a). Plan Qualification. No retirement plan of 
the United States or its agencies will fail to be treated as a 
qualified plan under the Internal Revenue Code of 1986 because 
of an action required by this Act. For example, the Act permits 
an employing agency to make up contributions on behalf of an 
employee who was entitled to such contributions in prior years 
without violating the applicable overall contribution and 
benefit limitations (section 415 of the I.R.C.) for the year 
during which the contribution is made.
    Section 401(b). Transfers. Neither government contributions 
to funds or accounts nor transfers between funds made as a 
result of this Act will be counted as income under the Internal 
Revenue Code.

                     VI. Compliance With Rule XIII

    Pursuant to rule XIII, clause 3(c)(1) of the Rules of the 
House of Representatives, under the authority of rule X, clause 
2(b)(1) and clause 3(e), the results and findings from 
Committee oversight activities are incorporated in the bill and 
this report.

                  VII. Budget Analysis and Projections

    The budget analysis and projections required by section 
308(a) of the Congressional Budget Act of 1974 are contained in 
the estimate of the Congressional Budget Office.

         VIII. Cost Estimate of the Congressional Budget Office

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 19, 1999.

Hon. Dan Burton,
Chairman, Committee on Government Reform,
House of Representatives, Washington, DC.

    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 416, the Federal 
Retirement Coverage Corrections Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact if Eric Rollins.

            Sincerely,

                                                    Dan L. Crippen.

    Enclosure.

H.R. 416--Federal Retirement Coverage Corrections Act

    Summary: H.R. 416 would alter the procedures for correcting 
situations where federal employees have been mistakenly placed 
in the wrong retirement system. Many of these retirement 
coverage errors occurred between 1984, when the Civil Service 
Retirement System (CSRS) was closed to new entrants, and 1987, 
when the Federal Employees' Retirement System (FERS) was 
created.
    CBO estimates that federal agencies would bear 
discretionary costs totaling $346 million over the 2000-2004 
period, primarily because the bill would increase the size of 
makeup contributions to the Thrift Savings Plan (TSP). The bill 
would also decrease direct spending by $113 million; this drop 
in direct spending largely reflects makeup contributions to the 
Social Security trust funds, which are off-budget. The bill 
would not have a significant impact on federal retirement 
benefits during the next several years because the affected 
employees are generally still in the middle of their careers. 
Because the bill would affect direct spending and receipts, 
pay-as-you-go procedures would apply.
    The bill would require the District of Columbia and 
Gallaudet University to correct instances where employees have 
been mistakenly enrolled in the wrong retirement system. This 
requirement represents both an intergovernmental and a private-
sector mandate as defined by the Unfunded Mandates Reform Act 
of 1995 (UMRA). However, CBO estimates that the cost of these 
mandates would be minimal.
    Estimated cost to the federal government: The estimated 
budgetary impact of H.R. 416 is shown in the following table.

                                TABLE 1. ESTIMATED BUDGETARY EFFECTS OF H.R. 416
----------------------------------------------------------------------------------------------------------------
                                                     By fiscal year, in millions of dollars--
                                 -------------------------------------------------------------------------------
                                   2000    2001    2002    2003    2004    2005    2006    2007    2008    2009
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION
 
Makeup contributions to TSP.....      23      68      66      73      45      31      35      39      -6      -7
Makeup payments to Social          \(1)\       1       1       1       1       1       1       1      -2      -2
 Security.......................
Makeup payments to the CSRDF....       6      20      17      18      13      11      11      12      -8      -9
Agency retirement contributions.   \(1)\   \(1)\   \(1)\      -1      -1      -2      -2      -2      -2      -3
Employer TSP contributions......   \(1)\   \(1)\      -1      -1      -2      -2      -2      -2      -2      -3
Employer Social Security           \(1)\   \(1)\   \(1)\       1       1       1       1       1       1       1
 contributions..................
                                 -------------------------------------------------------------------------------
      Total.....................      29      88      83      90      56      40      45      50     -19     -23
 
                                           CHANGES IN DIRECT SPENDING
 
On-Budget:
    Makeup payments to the CSRDF      -9     -30     -25     -27     -19     -16     -17     -19      12      13
    Agency retirement              \(1)\   \(1)\       1       2       2       2       2       3       3       4
     contributions..............
    Transfers from CSRDF to           10      31      27      28      21      18      19      21     -12     -13
     Social Security............
                                 -------------------------------------------------------------------------------
      Subtotal..................       1       2       2       3       4       4       5       5       3       4
                                 ===============================================================================
Off-Budget:
    Makeup payments to Social      \(1)\      -2      -1      -1      -1      -1      -1      -1       3       3
     Security...................
    Employer Social Security       \(1)\   \(1)\      -1      -1      -1      -1      -2      -2      -2      -1
     contributions..............
    Transfers from CSRDF to          -10     -31     -27     -28     -21     -18     -19     -21      12      13
     Social Security............
                                 -------------------------------------------------------------------------------
      Subtotal-.................     -10     -33     -28     -30     -23     -20     -22     -24      13      15
                                 ===============================================================================
      Total.....................      -9     -31     -26     -27     -19     -16     -17     -19      16      19
 
                                               CHANGES IN REVENUES
 
On-Budget:
    Employee retirement            \(1)\   \(1)\      -1      -1      -1      -1      -2      -2      -2      -1
     contributions..............
Off-Budget:
    Employee Social Security       \(1)\   \(1)\       1       1       1       1       2       2       2       1
     taxes......................
                                 -------------------------------------------------------------------------------
      Total.....................   \(1)\   \(1)\   \(1)\   \(1)\   \(1)\   \(1)\   \(1)\   \(1)\   \(1)\   \(1)\
 
                                             TOTAL COST OF H.R. 416
 
Direct spending and revenues....      -9     -31     -26     -27     -19     -16     -18     -19      16      19
All spending and revenues.......      20      57      56      63      37      24      27      30      -4      -4
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
 
Note: Components may not sum to totals because of rounding.

    The mandatory costs of this legislation would fall within 
budget functions 600 (Income Security), 650 (Social Security), 
and 950 (Undistributed Offsetting Receipts). Additional costs 
to employing agencies would be discretionary and would be 
funded through appropriations throughout the budget.
    Basis of estimate: H.R. 416 lays out procedures for 
correcting a wide variety of retirement coverage errors. CBO 
estimates that the bill would impose discretionary costs on 
agencies totaling $346 million over the 2000-2004 period. In 
addition, the bill would increase on-budget direct spending by 
$12 million over the same period. Off-budget direct spending 
would decrease by $124 million, for a net decrease in direct 
spending of $112 million. H.R. 416 would have little impact on 
net revenues; on-budget revenues would decrease by $3 million, 
while off-budget revenues would increase by $3 million. The 
estimate assumes that the Postal Service would increase postal 
rates to offset its own costs related to the bill. The estimate 
also assumes that the bill is enacted by October 1, 1999.
            Background
    There are two main retirement programs for full-time 
regular federal employees. Most full-time employees hired 
before 1984 are in Civil Service Retirement System (CSRS), a 
defined benefit plan that does not include Social Security. 
Those hired after 1983 are generally covered by the Federal 
Employees' Retirement System (FERS), which features Social 
Security, a more limited defined benefit, and the defined 
contribution Thrift Savings Plan (TSP) with government matching 
contributions. Employees who return to government service after 
1987 and have five years of prior service under CSRS may be 
covered by a hybird plan known as CSRS Offset that features a 
combination of CSRS and Social Security benefits.
    FERS employees may contribute up to 10 percent of their pay 
to the TSP. They receive an automatic contribution from their 
employing agency equal to 1 percent of their pay and may also 
receive an additional 4 percent in matching contributions. CSRS 
and CSRS Offset employees may also participate in the TSP, but 
they may only contribute up to 5 percent of their pay and do 
not receive any government contributions.
            Assumptions about retirement coverage errors
    CBO estimated the number of retirement coverage errors that 
have been made based on discussions with personnel officials in 
a number of large government agencies, including the Postal 
Service and the Department of Defense, Veterans Affairs, and 
Agriculture. These agencies comprise approximately 70 percent 
of the federal civilian workforce. On the basis of these 
discussions, CBO estimates that approximately 18,000 coverage 
errors have occurred throughout the government, of which 
approximately 11,000 have already been corrected. The two most 
common types of coverage errors to involve employees who should 
be in FERS but were accidentally put in CSRS, and employees 
with prior service who returned to government service and were 
misplaced in either FERS or CSRS Offset.
    H.R. 416 would also affect the speed with which agencies 
identify and correct retirement coverage errors. CBO assumed 
that, under current law, agencies would correct coverage errors 
at a constant annual rate. H.R. 416 would direct agencies to 
identify any retirement coverage errors and correct them by 
December 31, 2001, but would not impose any penalty on agencies 
that miss this deadline. CBO assumed that agencies would 
correct their errors at a 20 percent faster annual rate than 
under current law, but that some errors would remain 
undiscovered until 2009. Agencies would also stop correcting 
errors for the first six months of 2000 pending the issuance of 
final regulations to implement H.R. 416.
    Under current law, coverage errors are usually corrected by 
converting the employee to the proper retirement system, 
retroactive to original date of error. However, some employees 
who were accidentally placed in FERS are able to remain in FERS 
by making a retroactive election of FERS coverage. H.R. 416 
would allow most employees affected by coverage errors to 
choose whether they would like to be placed in the proper 
retirement system or make their current incorrect coverage 
permanent. All elections would be irrevocable, and employees 
who did not make an election would retain their current 
coverage. Coverage errors lasting less than a year would not be 
covered by the bill. CBO assumed that 80 percent of the 
employees whose errors have not yet been corrected would choose 
to be placed in the proper retirement system.
    Most of the employees whose coverage errors have already 
been corrected would also be given the option of returning to 
the retirement system in which they were mistakenly placed. 
However, employees who were mistakenly placed in CSRS and have 
already been placed in FERS would be able to elect only CSRS 
Offset coverage. CBO assumed that 80 percent of these employees 
would elect to remain in their current coverage.
            Effects on discretionary spending
    Makeup Contributions to TSP.--Employees who are incorrectly 
covered by CSRS rather than FERS are unable to participate 
fully in the TSP. Under current law, when an individual's 
coverage is corrected to FERS, the employing agency makes a 
lump-sum deposit into his TSP account equal to the government 
contributions and related earnings that would have been made to 
the employee's previous TSP contributions under FERS rules. If 
the employee did not have a TSP account, only a deposit for the 
automatic 1-percent contribution is made. Earnings are 
calculated using the individual's own fund allocation decisions 
(if he had a TSP account) or the G Fund rate (otherwise). 
Employees may provide makeup contributions to their TSP 
accounts out of future pay. These makeup contributions receive 
agency matching contributions (up to the 5-percent FERS 
maximum) and related earnings as if the contributions had been 
made at the proper time. However, back earnings are paid only 
on the agency's matching funds, not the employee's makeup 
contributions.
    H.R. 416 would change the way that makeup TSP contributions 
are calculated, and would apply to employees mistakenly covered 
by CSRS or CSRS Offset whose coverage is changed to FERS. 
Employees whose coverage was corrected to FERS prior to the 
bill's enactment would also be eligible. Under the bill, 
agencies would make a lump-sum payment to TSP representing past 
employee contributions as well as the automatic 1-percent 
agency contributions and agency matching contributions. The 
amount representing employee contributions would be calculated 
using the average contribution rate for FERS employees who 
participated in TSP, and would be paid whether or not the 
employee already has a TSP account (subject to the 10-percent 
annual limit on FERS contributions and the Internal Revenue 
Service's annual dollar limit on contributions to tax-deferred 
savings plans). Agencies would also pay past earnings on all 
three amounts. These earnings would be calculated using the 
employee's own TSP fund allocation choices. If the employee did 
not have a TSP account, a composite rate representing the 
average allocation of all FERS employees contributing to TSP 
would be used.
    Based on historical data provided by the Federal Retirement 
Thrift Investment Board, CBO estimates that these provisions 
would increase the average TSP makeup payment by $85,000 in 
2000. Employees whose coverage errors were corrected to FERS in 
the past would receive smaller payments of about $35,000. These 
amounts would be higher in later years due to additional 
foregone returns and contributions. CBO estimates that the 
additional cost of TSP makeup contributions would be $275 
million over the 2000-2004 period.
    Makeup Payments to Social Security.--Agencies are currently 
responsible for paying makeup Social Security payroll taxes 
covering the last 3 years, 3 months, and 15 days foremployees 
whose coverage is changed from CSRS to FERS or CSRS Offset. CBO 
estimates that these makeup payments would increase by $4 million 
during the 2000-2004 period. This rise primarily reflects the impact 
that the bill would have on speeding up the correction of coverage 
errors.
    Makeup Payments to the Civil Service Retirement and 
Disability Fund (CSRDF).--Under H.R. 416, any necessary 
adjustments to past agency retirement contributions to the 
CSRDF would be completely retroactive, as under current law. 
Agencies would also have to reimburse the CSRDF for certain 
transfers from the CSRDF to the Social Security trust funds. As 
noted earlier, agencies are responsible for makeup Social 
Security payroll taxes covering the last 3 years, 3 months, and 
15 days. If an employee was erroneously covered for a longer 
period of time, H.R. 416 would require the CSRDF to transfer to 
the Social Security trust funds an amount equal to the agency's 
payroll taxes for that additional period that should have gone 
to Social Security but went instead to the CSRDF. The agency 
would then be required to reimburse the CSRDF for the makeup 
employer taxes transferred to Social Security. CBO estimates 
that agency makeup payments to the CSRDF would increase by $74 
million between 2000 and 2004 under the bill.
    Agency Retirement Contributions.--The amount that agencies 
contribute towards their employees' retirement would decrease 
slightly because, relative to current law, the bill would shift 
some employees out of FERS into CSRS Offset, which requires 
lower agency retirement contributions.
    Employer TSP Contributions.--The additional employees who 
would shift out of FERS into CSRS Offset under H.R. 416 would 
no longer be eligible for the automatic and matching TSP 
contributions available under FERS, lowering agency spending on 
TSP contributions by $4 million over the 2000-2004 period.
    Employer Social Security Contributions.--Employer 
contributions to Social Security would increase by $2 million 
between 2000 and 2004 due to the speeding up of retirement 
corrections. These contributions would not be affected by the 
decision of some employees to switch from FERS to CSRS Offset 
since both types of coverage include Social Security.
            Effects on direct spending (on-budget)
    Makeup Payment of Retirement Contributions.--The increase 
in agency makeup payments to the CSRDF would be reflected in 
the budget both as additional agency outlays and as offsetting 
receipts to the CSRDF. As a result, receipts to the trust fund 
would increase by $110 million between 2000 and 2004. The 
increase in receipts is larger than the increase in agency 
makeup payments because the receipts figure includes payments 
by the Postal Service.
    Agency Retirement Contributions.--The increase in agency 
retirement contributions under the bill would decrease CSRDF 
receipts by $5 million over the 2000-2004 period. The decrease 
in receipts is larger than the decrease in agency retirement 
contributions because the receipts figure includes payments by 
the Postal Service.
    Transfers from the Civil Service Trust Fund to Social 
Security.--Under H.R. 416, the CSRDF would make payments to the 
Social Security trust funds for certain back payroll taxes. 
CSRDF would be required to transfer amounts equal to any 
employee payroll taxes and employer payroll taxes beyond the 
current statute of limitations of 3 years, 3 months, and 15 
days that should have gone to Social Security but instead went 
to the CSRDF. As noted above, agencies would reimburse the 
CSRDF for transfers of employer payroll taxes. CBO estimates 
that transfers from the CSRDF to the Social Security trust 
funds would total $117 million over the 2000-2004 period. 
Although these transfers are intragovernmental, the payments 
would be on-budget, and the receipt of these funds by Social 
Security would be off-budget.
            Effects on direct spending (off-budget)
    H.R. 416 would affect offsetting receipts to the Social 
Security trust funds in three ways. First, agency makeup 
payments would be slightly accelerated, increasing receipts by 
$5 million between 2000 and 2004. Second, receipts from 
employer Social Security contributions would rise by $3 million 
during this period. In both of these instances, the increase in 
receipts is larger than the increase in discretionary spending 
because the receipts figure includes payments by the Postal 
Service. Finally, transfers from the Civil Service trust fund 
for back taxes would increase receipts by $117 million during 
the 2000-2004 period.
            Effects on revenues
    Employee Retirement Contributions.--Because of the speeding 
up of retirement corrections, employee retirement contributions 
would decrease by $3 million over the 2000-2004 period. 
Employees would be moved more rapidly out of CSRS, which 
requires 7 percent employee contributions, and into CSRS Offset 
or FERS, which both require 0.8 percent employee contributions.
    Employee Social Security Taxes.--By moving from CSRS to 
CSRS Offset or FERS, employees would also become covered by 
Social Security. The speeding up of retirementcorrections thus 
would increase receipts of employee Social Security taxes by $3 million 
between 1999 and 2003.
    Pay-as-you-go considerations: The provisions of H.R. 416 
would affect on-budget direct spending and revenues and 
therefore be subject to pay-as-you-go procedures. The pay-as-
you-go procedures cover only the current year, budget year, and 
the succeeding four years. The pay-as-you-go effects of the 
bill are shown in Table 2.

                                    TABLE 2. SUMMARY OF PAY-AS-YOU-GO EFFECTS
----------------------------------------------------------------------------------------------------------------
                                                          By fiscal year, in millions of dollars--
                                           ---------------------------------------------------------------------
                                             2000   2001   2002   2003   2004   2005   2006   2007   2008   2009
----------------------------------------------------------------------------------------------------------------
Change in outlays.........................      1      2      2      3      4      4      5      5      3      4
Change in receipts........................      0      0     -1     -1     -1     -1     -2     -2     -2     -1
----------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 416 would 
require the government of the District of Columbia and 
Gallaudet University to correct errors associated with the 
incorrect enrollment of employees in certain retirement plans. 
This requirement is both an intergovernmental and a private-
sector mandate as defined by UMRA. However, costs associated 
with those corrections would be minimal, and only a small 
number of employees of the District of Columbia and Gallaudet 
University have been affected by the errors addressed by the 
bill. Consequently, CBO estimates that the total cost of the 
mandates would be minimal.
    Comparison with other estimates: An identical version of 
H.R. 416 was reported by the House Committee on Ways and Means 
on February 11, 1999.
    H.R. 416 is similar to H.R. 3249, which was approved by the 
House of Representatives in the 105th Congress. The only major 
difference between the two bills is that H.R. 3249 also 
included a provision authorizing an open season for federal 
employees covered by the Foreign Service Retirement and 
Disability System to switch into the newer Foreign Service 
Pension System.
    CBO estimated that H.R. 3249 would impose discretionary 
costs on agencies totaling $443 million and reduce direct 
spending by $135 million over the 1999-2003 period. The main 
reason that the discretionary impact of H.R. 416 is lower than 
that for H.R. 3249 is that CBO lowered its estimate of the 
additional TSP makeup contributions that would be paid to 
employees whose coverage had already been corrected to FERS 
prior to the bill's enactment.
    Estimate prepared by: Federal cost: Eric Rollins; Impact on 
State, local, and tribal governments: Leo Lex; Impact on the 
private sector: John Harris.
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

       IX. Specific Constitutional Authority for This Legislation

    Clauses 1 and 18 of Article 1, Sec. 8 of the Constitution 
grant Congress the power to enact this law.

                      X. Committee Recommendation

    On February 3, 1999, a quorum being present, the Committee 
ordered the bill, as amended, favorably reported.

  COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT--106TH CONGRESS RECORD 
                                  VOTE

    Date: February 3, 1999.
    Final Passage of H.R. 416.
    Offered by: Hon. Joe Scarborough (FL).
    Adopted by voice vote.

    XI. Congressional Accountability Act; Public Law 104-1; Section 
                               102(b)(3)

    The amendments made by H.R. 416 will apply to employees and 
former employees of the legislative branch who participate (or 
should participate) in the Federal retirement systems to the 
same extent as it applies to other participating employees.

    XII. Unfunded Mandates Reform Act; Public Law 104-4; Section 423

    H.R. 416, as amended, would require both the government of 
the District of Columbia and Gallaudet University to correct 
retirement coverage errors affecting employees who participate 
in the Federal retirement systems. This is both an 
intergovernmental and a private-sector mandate as defined by 
the Unfunded Mandates Reform Act. CBO estimates that the total 
cost of the mandates would be minimal.

   XIII. Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b)

    The Committee finds that the legislation does not establish 
or authorize establishment of an advisory committee within the 
definition of 5 U.S.C. App., Section 5(b)

       XIV. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(g) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                 SECTION 210 OF THE SOCIAL SECURITY ACT

                        DEFINITION OF EMPLOYMENT

Sec. 210. For the purposes of this title--

                               Employment

  (a) The term ``employment'' means any service performed after 
1936 and prior to 1951 which was employment for the purposes of 
this title under the law applicable to the period in which such 
service was performed, and any service, of whatever nature, 
performed after 1950 (A) by an employee for the person 
employing him, irrespective of the citizenship or residence of 
either, (i) within the United States, or (ii) on or in 
connection with an American vessel or American aircraft under a 
contract of service which is entered into within the United 
States or during the performance of which and while the 
employee is employed on the vessel or aircraft it touches at a 
port in the United States, if the employee is employed on and 
in connection with such vessel or aircraft when outside the 
United States, or (B) outside the United States by a citizen or 
resident of the United States as an employee (i) of an American 
employer (as defined in subsection (e) of this section), or 
(ii) of a foreign affiliate (as defined in section 3121(l)(6) 
of the Internal Revenue Code of 1986 of an American employer 
during any period for which there is in effect an agreement, 
entered into pursuant to section 3121(l) of such Code, with 
respect to such affiliate, or (C) if it is service, regardless 
of where or by whom performed, which is designated as 
employment or recognized as equivalent to employment under an 
agreement entered into under section 233; except that, in the 
case of service performed after 1950, such term shall not 
include--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Service performed in the employ of the United 
        States or any instrumentality of the United States, if 
        such service--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) service performed by an individual--
                          (i) on or after the effective date of 
                        an election by such individual, under 
                        section 301 of the Federal Employees' 
                        Retirement System Act of 1986, section 
                        307 of the Central Intelligence Agency 
                        Retirement Act (50 U.S.C. 2157), or the 
                        Federal Employees' Retirement System 
                        Open Enrollment Act of 1997 to become 
                        subject to the Federal Employees' 
                        Retirement System provided in chapter 
                        84 of title 5, United States Code, [or]
                          (ii) on or after the effective date 
                        of an election by such individual, 
                        under regulations issued under section 
                        860 of the Foreign Service Act of 1980, 
                        to become subject to the Foreign 
                        Service Pension System provided in 
                        subchapter II of chapter 8 of title I 
                        of such Act[;], or
                          (iii)(I) described in section 
                        111(a)(3) of the Federal Retirement 
                        Coverage Corrections Act, on or after 
                        the effective date of an election (or 
                        deemed election) by such individual 
                        under section 111(b)(2) of such Act;
                          (II) described in section 131(a)(1) 
                        of such Act, on or after the effective 
                        date of an election (or deemed 
                        election) by such individual under 
                        subsection (b)(2) or (c)(1) of section 
                        131 of such Act; or
                          (III) described in section 151(a) of 
                        such Act, on or after the effective 
                        date of an election (or deemed 
                        election) by such individual under 
                        subsection (b)(2) or (c)(1) of section 
                        151 of such Act;

           *       *       *       *       *       *       *

                              ----------                              

           SECTION 3121 OF THE INTERNAL REVENUE CODE OF 1986

SEC. 3121. DEFINITIONS.

  (a) * * *
  (b) Employment.--For purposes of this chapter, the term 
``employment'' means any service, of whatever nature, performed 
(A) by an employee for the person employing him, irrespective 
of the citizenship or residence of either, (i) within the 
United States, or (ii) on or in connection with an American 
vessel or American aircraft under a contract of service which 
is entered into within the United States or during the 
performance of which and while the employee is employed on the 
vessel or aircraft it touches at a port in the United States, 
if the employee is employed on and in connection with such 
vessel or aircraft when outside the United States, or (B) 
outside the United States by a citizen or resident of the 
United States as an employee for an American employer (as 
defined in subsection (h)), or (C) if it is service, regardless 
of where or by whom performed, which is designated as 
employment or recognized as equivalent to employment under an 
agreement entered into under section 233 of the Social Security 
Act; except that such term shall not include--
          (1) * * *

           *       *       *       *       *       *       *

          (5) service performed in the employ of the United 
        States or any instrumentality of the United States, if 
        such service--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) service performed by an individual--
                          (i) on or after the effective date of 
                        an election by such individual, under 
                        section 301 of the Federal Employees' 
                        Retirement System Act of 1986 or 
                        section 307 of the Central Intelligence 
                        Agency Retirement Act (50 U.S.C. 2157), 
                        to become subject to the Federal 
                        Employees' Retirement System provided 
                        in chapter 84 of title 5, United States 
                        Code, [or]
                          (ii) on or after the effective date 
                        of an election by such individual, 
                        under regulations issued under section 
                        860 of the Foreign Service Act of 1980, 
                        to become subject to the Foreign 
                        Service Pension System provided in 
                        subchapter II of chapter 8 of title I 
                        of such Act; or
                          (iii)(I) described in section 
                        111(a)(3) of the Federal Retirement 
                        Coverage Corrections Act, on or after 
                        the effective date of an election (or 
                        deemed election) by such individual 
                        under section 111(b)(2) of such Act;
                          (II) described in section 131(a)(1) 
                        of such Act, on or after the effective 
                        date of an election (or deemed 
                        election) by such individual under 
                        subsection (b)(2) or (c)(1) of section 
                        131 of such Act; or
                          (III) described in section 151(a) of 
                        such Act, on or after the effective 
                        date of an election (or deemed 
                        election) by such individual under 
                        subsection (b)(2) or (c)(1) of section 
                        151 of such Act;

           *       *       *       *       *       *       *

                              ----------                              

TITLE 5--UNITED STATES CODE

           *       *       *       *       *       *       *

PART III--EMPLOYEES

           *       *       *       *       *       *       *

Subpart G--Insurance and Annuities

           *       *       *       *       *       *       *

CHAPTER 83--RETIREMENT

           *       *       *       *       *       *       *

SUBCHAPTER III--CIVIL SERVICE RETIREMENT

           *       *       *       *       *       *       *

Sec. 8348. Civil Service Retirement and Disability Fund

  (a) There is a Civil Service Retirement and Disability Fund. 
The Fund--
          (1) * * *
          (2) is made available, subject to such annual 
        limitation as the Congress may prescribe, for any 
        expenses incurred by the Office in connection with the 
        administration of this chapter, chapter 84 of this 
        title, and other retirement and annuity [statutes;] 
        statutes (including the provisions of the Federal 
        Retirement Coverage Corrections Act that relate to this 
        subchapter); and
          (3) is made available, subject to such annual 
        limitation as the Congress may prescribe, for any 
        expenses incurred by the Merit Systems Protection Board 
        in the administration of appeals authorized under 
        sections 8347(d) and 8461(e) of this [title.] title and 
        the Federal Retirement Coverage Corrections Act.

           *       *       *       *       *       *       *

CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM

           *       *       *       *       *       *       *

SUBCHAPTER III--THRIFT SAVINGS PLAN

           *       *       *       *       *       *       *

Sec. 8432. Contributions

  (a) * * *

           *       *       *       *       *       *       *

  (h) No transfers or contributions may be made to the Thrift 
Savings Fund except as provided in this chapter or section 8351 
of this [title.] title or the Federal Retirement Coverage 
Corrections Act.

           *       *       *       *       *       *       *

Sec. 8437. Thrift Savings Fund

  (a) There is established in the Treasury of the United States 
a Thrift Savings Fund.
  (b) The Thrift Savings Fund consists of the sum of all 
amounts contributed under section 8432 of this title and all 
amounts deposited under section 8479(b) of this title, 
increased by the total net earnings from investments of sums in 
the Thrift Savings Fund or reduced by the total net losses from 
investments of the Thrift Savings Fund, and reduced by the 
total amount of payments made from the Thrift Savings Fund 
(including payments for administrative [expenses).] expenses), 
as well as contributions under the Federal Retirement Coverage 
Corrections Act (and lost earnings made up under such Act).

           *       *       *       *       *       *       *

  (d) Administrative expenses incurred to carry out this 
subchapter (including the provisions of the Federal Retirement 
Coverage Corrections Act that relate to this subchapter) and 
subchapter VII of this chapter shall be paid first out of any 
sums in the Thrift Savings Fund forfeited under section 8432(g) 
of this title and then out of net earnings in such Fund.

           *       *       *       *       *       *       *

                                  
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