[Federal Register Volume 62, Number 152 (Thursday, August 7, 1997)]
[Proposed Rules]
[Pages 42418-42426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20729]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / 
Proposed Rules

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FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Part 1650


Methods of Withdrawing Funds From the Thrift Savings Plan

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Proposed rule with request for comment.

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SUMMARY: The Executive Director of the Federal Retirement Thrift 
Investment Board (Board) is publishing a proposed rule to implement two 
provisions of the Thrift Savings Plan Act of 1996. The first specifies 
how long a separated participant can maintain a Thrift Savings Plan 
(TSP) account and the second expands TSP withdrawal options by allowing 
in-service withdrawals.

DATES: Comments must be received by September 8, 1997.

ADDRESSES: Comments may be sent to Patrick J. Forrest, Federal 
Retirement Thrift Investment Board, 1250 H Street, NW, Washington, DC 
20005.

FOR FURTHER INFORMATION CONTACT: Patrick J. Forrest, (202) 942-1662.

SUPPLEMENTARY INFORMATION: The Board administers the TSP, which was 
established by the Federal Employees' Retirement System Act of 1986 
(FERSA), Pub. L. 99-335, 100 Stat. 514 (codified, as amended, largely 
at 5 U.S.C. 8351 and 8401-8479). The TSP is a tax-deferred retirement 
savings plan for Federal employees which is similar to cash or deferred 
arrangements established under section 401(k) of the Internal Revenue 
Code. The Board published its current withdrawal regulations, which are 
codified at 5 CFR part 1650, in final form on February 21, 1995 (60 FR 
9595).
    On September 30, 1996, the President signed the Thrift Savings Plan 
Act of 1996 (the TSPA), Pub. L. 104-208, div. A, title I, sec. 101(f), 
section 659. Before passage of the TSPA, a participant was required to 
make a valid withdrawal election by February 1 of the year following 
the latest of (1) the date upon which the participant attained age 65, 
(2) the date that was 10 years after the effective date of the 
participant's first TSP contribution, or (3) the date the participant 
separated from Federal service. The Board was required by 5 U.S.C. 
8433(f)(2) to purchase an annuity for a participant who did not make 
such an election. However, the Board never purchased an annuity for a 
participant under this rule because the tenth anniversary of the first 
TSP contributions did not occur until April 1997.
    Section 203(a)(4) of the TSPA amended FERSA to provide that a 
participant must withdraw his or her account balance in a single 
payment or begin receiving his or her TSP account balance in monthly 
payments (or in the form of a TSP annuity) by April 1 of the later of 
(1) the year following the year in which the participant reaches age 
70\1/2\, or (2) the year following the year in which the participant 
separates from Federal service. If the participant does not make an 
election so that payment can be made by this deadline, the Board must 
use his or her TSP account to purchase an annuity for the participant. 
The first calendar year in which withdrawals will be required under the 
amendment is 1998.
    Before passage of the TSPA, FERSA also provided at 5 U.S.C. 8433(a) 
that a TSP participant could only withdraw his or her account after 
separating from Government employment. Therefore, in-service TSP 
withdrawals were not permitted. Section 203(a)(6) of the TSPA amended 
FERSA to allow in-service withdrawals under two circumstances. Under 5 
U.S.C. 8433(h)(1)(A), a participant who has turned age 59\1/2\ can 
withdraw an amount up to his or her entire vested TSP account balance 
before separating from Government employment. A participant is allowed 
only one withdrawal under this provision. In addition, under section 
8433(h)(1)(B), a participant can obtain a withdrawal before separating 
from Government employment on the basis of financial hardship. A 
financial hardship withdrawal is limited to the amount the participant 
contributed to the TSP (plus the earnings attributed to those 
contributions). There is no limit on the number of such withdrawals.
    This proposed rule reorganizes and amends the Board's withdrawal 
regulations at 5 CFR part 1650 to implement the TSPA amendments. 
Subpart A of part 1650 contains general information and rules. This 
proposed rule adds new definitions to Sec. 1650.1 and rewrites the 
sections that describe withdrawal eligibility (Sec. 1650.2) and the 
effect of a freeze on a participant's account (renumbered as 
Sec. 1650.3) to make subpart A apply to both post-employment and in-
service withdrawals. Also, this proposed rule removes Sec. 1650.5 
(regarding outstanding loans) as an independent section within subpart 
A. Before its removal, Sec. 1650.5 explained that a participant must 
repay an outstanding TSP loan or that his or her loan must be declared 
a taxable distribution before the participant could obtain a post-
employment withdrawal. An outstanding TSP loan will not prevent an in-
service withdrawal. Because the substance of Sec. 1650.5 is still a 
principle of post-employment withdrawal eligibility, it has been moved 
to new Sec. 1650.2(c).
    Subparts B and C describe post-employment withdrawals and explain 
the post-employment withdrawal process. The procedures which govern 
post-employment withdrawals will remain the same, and the only proposed 
substantive change to those subparts is a revision of Sec. 1650.15 
(which is Sec. 1650.13 in the Board's current regulations) to reflect 
the new required date for receiving a post-employment withdrawal. 
However, to make room for the two new subparts which govern in-service 
withdrawals, the subparts B and C headings have been renamed and each 
of the subparts' sections have been renumbered. To provide a more 
convenient resource to the reader, the Board will republish subparts B 
and C in their entirety.
    This proposed rule creates new subparts D and E in part 1650 to 
describe in-service withdrawals and explain the in-service withdrawal 
process. Section 1650.30 describes the age-based in-service withdrawal; 
Sec. 1650.40 explains how to obtain one; and Sec. 1650.42(a) describes 
the participant's payment options. A participant is allowed only one 
age-based in-service withdrawal. A participant who has reached age 
59\1/2\ can withdraw up to his or her entire vested TSP account balance 
as a single

[[Page 42419]]

payment. Because an age-based in-service withdrawal is an eligible 
rollover distribution, a participant can ask the TSP to transfer all or 
a portion of the withdrawal to an Individual Retirement Arrangement 
(IRA) or other eligible retirement plan. Any amount withdrawn but not 
transferred is subject to mandatory 20 percent Federal income tax 
withholding. An age-based in-service withdrawal is not subject to the 
additional 10 percent tax imposed by the Internal Revenue Code (I.R.C. 
72(t)) on the early withdrawal of retirement savings.
    Section 1650.31 describes the financial hardship in-service 
withdrawal; Sec. 1650.41 explains how to obtain one; and 
Sec. 1650.42(b) describes the participant's payment options. Only 
financial hardships described under Sec. 1650.31 can be used as the 
basis for requesting an in-service withdrawal, and only sums 
contributed by the participant and their attributable earnings can be 
withdrawn for this purpose.
    There are two types of qualifying financial hardships: Insufficient 
cash flow and extraordinary expenses. Under Sec. 1650.31(a)(1), a 
participant will show financial hardship by demonstrating that his or 
her monthly cash flow cannot meet ordinary monthly household expenses. 
Under Sec. 1650.31(a)(2), a participant will show financial hardship by 
demonstrating that he or she has incurred an unreimbursed and unpaid 
extraordinary expense which cannot be met by his or her monthly cash 
flow. Extraordinary expenses are limited to medical expenses relating 
to the care or treatment of the participant, the participant's spouse, 
or the participant's dependents; household improvements needed on 
account of a medical condition, illness or injury to the participant, 
the participant's spouse, or the participant's dependents; personal 
casualty loss suffered by the participant; and legal costs associated 
with the participant's separation and divorce. A participant can 
qualify for a financial hardship withdrawal by meeting one of the tests 
or by showing a combination of negative cash flow and extraordinary 
expenses.
    Like an age-based withdrawal, a financial hardship withdrawal is an 
eligible rollover distribution; therefore, the participant may ask the 
TSP to transfer all or a portion of the withdrawal to an IRA or other 
eligible retirement plan. The TSP will withhold for Federal income tax 
purposes 20 percent of any amount withdrawn but not transferred. The 
hardship withdrawal applicant can ask the TSP to increase his or her 
withdrawal so that the net disbursement after the mandatory withholding 
will be the amount requested (or the maximum amount for which the 
participant qualifies, if less than the amount requested). This is 
subject to the availability of employee contributions and earnings in 
the participant's account.
    Section 1650.32 explains that a participant can continue to 
contribute to the TSP after obtaining an age-based withdrawal, but is 
not eligible to contribute to the TSP for a period of six months after 
obtaining a financial hardship withdrawal. After six-months 
ineligibility to contribute, the participant can resume TSP 
contributions only by making a new TSP election on Form TSP-1. 
Generally, a participant whose TSP contributions were discontinued 
because of a financial hardship withdrawal is not required to wait 
until a TSP open season to submit Form TSP-1. A FERS participant's 
agency automatic (1%) contributions will continue following either type 
of in-service withdrawal.
    Finally, Sec. 1650.33 explains that a TSP loan and an in-service 
withdrawal are not interchangeable and that a TSP withdrawal cannot be 
repaid.
    In addition to amending the withdrawal provisions of part 1650, 
this proposed rule would amend the spousal rights provisions. The TSPA 
provides that the spouse of a FERS participant must consent to an in-
service withdrawal and that the spouse of a CSRS participant is 
entitled to notice when the participant applies for an in-service 
withdrawal. These spousal rights, which mirror those applicable to TSP 
loans, will be incorporated into the withdrawal regulations. This 
proposed rule would make no other changes to the spousal rights 
provisions of the withdrawal regulations other than by reorganizing 
them for purposes of clarity and ease of reading.

Regulatory Flexibility Act

    I certify that these regulations will not have a significant 
economic impact on a substantial number of small entities because they 
will apply only to Federal agencies and employees.

Paperwork Reduction Act

    I certify that these regulations do not require additional 
reporting under the criteria of the Paperwork Reduction Act of 1980.

Unfunded Mandates Reform Act of 1995

    Pursuant to the Unfunded Mandates Reform Act of 1995, section 201, 
Pub. L. 104-4, 109 Stat. 48, 64, the effect of these regulations on 
State, local, and tribal governments and on the private sector has been 
assessed. These regulations will not compel the expenditure in any one 
year of $100 million or more by any State, local, and tribal 
governments in the aggregate or by the private sector. Therefore, a 
statement under section 202, 109 Stat. 48, 64-65, is not required.

List of Subjects in 5 CFR Part 1650

    Employee benefit plans, Government employees, Pensions, Retirement.

Federal Retirement Thrift Investment Board.
Roger W. Mehle,
Executive Director.

    For the reasons set out on the preamble, the Federal Retirement 
Thrift Investment Board proposes to revise 5 CFR part 1650 to read as 
follows:

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

Subpart A--General

Sec.
1650.1  Definitions.
1650.2  Eligibility for a TSP withdrawal.
1650.3  Frozen accounts.

Subpart B--Post-Employment Withdrawals

1650.10  Single payment.
1650.11  Monthly payments.
1650.12  Annuities.
1650.13  Transfer of withdrawal payments.
1650.14  Deferred withdrawal elections.
1650.15  Required withdrawal date.
1650.16  Changes and cancellation of withdrawal election.

Subpart C--Procedures for Post-Employment Withdrawals

1650.20  Information to be provided by agency.
1650.21  Accounts of more than $3,500.
1650.22  Accounts of $3,500 or less.

Subpart D--In-Service Withdrawals

1650.30  Age-based withdrawals.
1650.31  Financial hardship withdrawals.
1650.32  Contributing to the TSP after an in-service withdrawal.
1650.33  Uniqueness of loans and withdrawals.

Subpart E--Procedures for In-Service Withdrawals

1650.40  How to obtain an age-based in-service withdrawal.
1650.41  How to obtain a financial hardship in-service withdrawal.
1650.42  Taxes related to in-service withdrawals.

Subpart F--[Reserved]

Subpart G--Spousal Rights

1650.60  Spousal rights pertaining to post-employment withdrawals.
1650.61  Spousal rights when a separated participant changes a post-
employment withdrawal election.

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1650.62  Spousal rights pertaining to in-service withdrawals.
1650.63  Executive Director's exception to the spousal notification 
requirement.
1650.64  Executive Director's exception to requirement to obtain the 
spouse's signature.

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

Subpart A--General


Sec. 1650.1  Definitions.

    As used in this part:
    Account balance means, unless otherwise specified, the 
nonforfeitable valued account balance of a TSP participant as of the 
most recent month-end before the date a withdrawal occurs.
    Board means the Federal Retirement Thrift Investment Board 
established pursuant to 5 U.S.C. 8472.
    CSRS means the Civil Service Retirement System established by 5 
U.S.C. chapter 83, subchapter III, or any equivalent retirement system.
    FERS means the Federal Employees' Retirement System established by 
5 U.S.C. chapter 84, or any equivalent retirement system.
    In-service withdrawal means an age-based or financial hardship 
withdrawal from the TSP obtained by a participant who is still employed 
by the Government.
    Monthly processing cycle means the process, beginning on the 
evening of the fourth business day of the month, by which the record 
keeper allocates the amount of earnings to be credited to participant 
accounts in the Plan and authorizes disbursements from the Plan.
    Participant means any person with an account in the Thrift Savings 
Plan.
    Post-employment withdrawal means a withdrawal from the TSP obtained 
by a participant who has separated from Government employment, as 
described at 5 CFR 1650.1.
    Reimbursement means a payment made to or on behalf of a participant 
by any person or entity (including an insurance company) to cover the 
cost of an extraordinary expense described in Sec. 1650.31(a)(2).
    Separation from Government employment means the cessation of 
employment with the Federal Government or the U.S. Postal Service (or 
with any other employer from a position that is deemed to be Government 
employment for purposes of participating in the TSP) for at least 31 
full calendar days.
    Spouse means the person to whom a TSP participant is married on the 
date he or she signs forms on which the TSP requests spouse information 
including a spouse from whom the participant is legally separated, and 
including a person with whom a participant is living in a relationship 
that constitutes a common law marriage in the jurisdiction in which 
they live.
    Thrift Savings Plan, TSP, or Plan means the Federal Retirement 
Thrift Savings Plan, established under subchapters III and VII of the 
Federal Employees' Retirement System Act of 1986, 5 U.S.C. 8351 and 
8401-8479.
    Thrift Savings Plan (TSP) contribution election means a request by 
an employee to start contributing to the TSP, to terminate 
contributions to the TSP, to change the amount of contributions made to 
the TSP each pay period, or to change the allocation of future TSP 
contributions among the investment funds, and made effective pursuant 
to 5 CFR part 1600.
    Thrift Savings Plan Service Office means the office established by 
the Board to service participants. This office's current address is: 
Thrift Savings Plan Service Office, National Finance Center, PO Box 
61500, New Orleans, Louisiana 70161-1500.
    Valuation date means, for purposes of a required minimum 
distribution, the last day of the calendar year immediately preceding 
the year for which a distribution is made.


Sec. 1650.2  Eligibility for a TSP withdrawal.

    (a) A participant who separates from Government employment, as 
described in Sec. 1650.1, can withdraw his or her account by one of the 
withdrawal methods described in subpart B of this part using the 
procedures set out in subpart C of this part.
    (b) A separated participant who is reemployed in a position in 
which he or she is eligible to participate in the TSP is subject to the 
following withdrawal eligibility rules:
    (1) A participant who is reemployed in a TSP-eligible position on 
or before the 31st full calendar day after separation cannot withdraw 
his or her TSP account (except for an in-service withdrawal described 
in subpart D of this subpart). If the participant is scheduled for an 
automatic cashout, as described in Sec. 1650.22, the cashout will be 
canceled if the participant informs the TSP that he or she has been 
reemployed or expects to be reemployed within 31 full calendar days of 
separation.
    (2) A participant who is reemployed in a TSP-eligible position more 
than 31 full calendar days after separation may withdraw the portion of 
his or her account balance which is attributable to the earlier period 
of employment. If the amount attributable to the earlier period of 
employment is greater than $3,500, the participant must submit a 
properly completed withdrawal request (Form TSP-70) selecting a 
withdrawal option that results in an immediate withdrawal. However, a 
Form TSP-70 will not be accepted unless the TSP records indicate that 
the former employing agency reported the participant as separated from 
Government employment. If a participant has elected to receive monthly 
payments under Sec. 1650.11, upon report by the agency that the 
participant is not separated, payments will not be made and, if already 
started, will stop.
    (c) A participant who has not separated from Government employment 
can elect a withdrawal option described in subpart D of this part by 
following the procedures set out in subpart E of this part.
    (d) A participant cannot make a post-employment withdrawal until 
any outstanding TSP loan has been either repaid in full or declared to 
be a taxable distribution. An outstanding TSP loan does not affect a 
participant's eligibility for an in-service withdrawal.
    (e) All withdrawals are subject to the rules relating to spouse's 
rights (found in subpart G of this part), domestic relations orders, 
alimony and child support legal process, and child abuse enforcement 
orders (5 CFR part 1653). Post-employment withdrawals are also subject 
to the Internal Revenue Code's required minimum distribution rules.


Sec. 1650.3  Frozen accounts.

    A participant may not withdraw any portion of his or her account 
balance if the account is frozen as a result of a pending retirement 
benefits court order, an alimony or child support enforcement order, a 
child abuse enforcement order, or as a result of a freeze placed on the 
account by the Board for another reason.

Subpart B--Post-Employment Withdrawals


Sec. 1650.10  Single payment.

    A participant can withdraw his or her entire account in a single 
payment.


Sec. 1650.11  Monthly payments.

    (a) A participant can withdraw his or her account balance in two or 
more substantially equal monthly payments, to be calculated under one 
of the following methods:
    (1) A fixed monthly payment amount. The amount must be at least $25 
per month and must satisfy any minimum distribution requirements. 
Payments will be made each month until the account is expended. If the 
last scheduled payment would be less than

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the chosen amount, it will be combined and paid with the previous 
payment;
    (2) A fixed number of monthly payments. The participant's month-end 
account balance for the month preceding the month of the first payment 
will be divided by the number of payments chosen in order to determine 
the monthly amount. If that amount is less than $25, the election is 
rejected. The payment must also meet any minimum distribution 
requirements. In January of each subsequent year, the TSP will divide 
the December 31 account balance from the prior year by the remaining 
number of payments in order to determine that year's monthly payments. 
If the monthly payment amount is less than $25, it will be increased to 
$25. This process will be repeated each year until the account is 
expended; or
    (3) A monthly payment amount calculated using the factors set forth 
in Internal Revenue Service expected return multiply table V, 26 CFR 
1.72-9. There is no $25 minimum monthly payment under this method. In 
the year payments begin, the monthly payment amount is calculated by 
dividing the month-end account balance for the month preceding the 
month of the first payment by the factor from table V based upon the 
participant's age as of his or her birthday in that year. This amount 
is then divided by 12 to yield the monthly payment amount. In 
subsequent years, the monthly payment amount is recalculated each 
January by dividing the December 31 account balance from the previous 
year by the factor from Table V based upon the participant's age as of 
his or her birthday in the year payments will be made. That amount is 
divided by 12 to yield the monthly payment amount.
    (b) A participant who chooses to receive monthly payments 
calculated using one of the three methods set forth in paragraph (a) of 
this section cannot change the method after payments begin. Also, 
except as provided in paragraph (c) of this section, the participant 
cannot change the number of payments or the payment amount after 
payments begin.
    (c) A participant receiving monthly payments can choose to receive 
the remainder of his or her account balance in a final single payment.
    (d) A participant receiving monthly payments may invest his or her 
account balance as provided in 5 CFR part 1601.


Sec. 1659.12  Annuities.

    (a) A participant can withdraw his or her entire account balance in 
the form of a life annuity. The participant's account balance must be 
$3,500 or more in order for the TSP to purchase an annuity. The TSP 
will send forms to a participant who chooses this method which ask him 
or her to choose an annuity method, name a beneficiary (if required), 
and provide any necessary spousal waiver or spousal information. Upon 
receipt of the required information, the TSP will purchase the annuity 
from the TSP's annuity vendor using the participant's entire account 
balance, except for any amount necessary to satisfy minimum 
distribution requirements. The first annuity payment will be made 
approximately 30 calendar days after the purchase of the annuity. The 
annuity will provide a payment for life to the participant and, if 
applicable, the participant's survivor, in accordance with the type of 
annuity chosen.
    (b) The following types of annuities are available to participants:
    (1) A single life annuity with level payments. This annuity is 
based upon the life expectancy of the participant at the time of 
purchase and provides monthly payments to the participant as long as 
the participant lives.
    (2) A joint life annuity for the participant and his or her spouse 
with level payments. This annuity is based upon the combined life 
expectancies of the participant and the spouse and provides monthly 
payments to the participant, as long as both the participant and spouse 
are alive, and monthly payments to the survivor, as long as he or she 
is alive.
    (3) Either a single life or joint life annuity (as described in 
paragraph (b)(1) or (b)(2) of this section) where the amount of the 
monthly payment can increase each year on the anniversary date of the 
first annuity payment. The amount of the increase is based on the 
average annual change in the Consumer Price Index for Urban Wage 
Earners and Clerical Workers as measured between the period of July 
through September in the second calendar year preceding the anniversary 
date and July through September in the calendar year preceding the 
anniversary date. For example, if the anniversary of an increasing 
annuity occurs in November of 1995, the amount of the increase will be 
calculated based upon the change in the index between the July-
September period in 1993 and the July-September period in 1994. Monthly 
payments cannot decrease, nor can they increase more than 3 percent 
each year. If this option is chosen in conjunction with a joint life 
annuity with the spouse, the annual increase continues to apply to 
benefits received by the survivor.
    (4) A joint life annuity, with level payments, for the participant 
and another person who either is a former spouse or has an insurable 
interest in the participant. This annuity is based upon the combined 
life expectancies of the participant and the other person. It provides 
monthly payments to the participant as long as both the participant and 
the joint annuitant are alive, and monthly payments to the survivor as 
long as he or she is alive. Increasing payments cannot be chosen for a 
joint annuity with a person other than the spouse.
    (i) A person has an ``insurable interest'' in a participant if the 
person is financially dependent on the participant and could reasonably 
expect to derive financial benefit from the participant's continued 
life.
    (ii) A relative (whether blood or adopted, but not by marriage) who 
is closer than a first cousin will be presumed to have an insurable 
interest in the participant.
    (iii) A participant can establish that a person not described in 
paragraph (b)(4)(ii) of this section has an insurable interest in him 
or her by submitting with the annuity request an affidavit from a 
person other than the participant or the joint annuitant demonstrating 
that the designated joint annuitant has an insurable interest (as 
defined in paragraph (b)(4)(i) of this section) in the participant.
    (c) Participants who choose a joint life annuity (with either a 
spouse or a person with an insurable interest) must choose either a 50 
percent or a 100 percent survivor benefit. A 50 percent survivor 
benefit provides a monthly payment to the survivor which is 50 percent 
of the payment made when both the participant and the joint annuitant 
are alive. A 100 percent survivor benefit provides a monthly payment to 
the survivor which is the same amount as the payment made when both the 
participant and the survivor are alive. Either the 50 percent or the 
100 percent survivor benefit may be combined with any joint life 
annuity option, except that the 100 percent survivor benefit can be 
combined with a joint annuity with a person other than the spouse (or a 
former spouse, if required by a retirement benefits court order) only 
if the joint annuitant is not more than 10 years younger than the 
participant.
    (d) The following mutually exclusive features can be combined with 
certain types of annuities, as indicated:
    (1) Cash refund. This feature provides that, if the participant 
(and joint annuitant, if applicable) dies before an amount equal to the 
balance used to purchase the annuity has been paid out, the difference 
between the balance used to purchase the annuity and the sum of

[[Page 42422]]

monthly payments already made will be paid to the named beneficiaries. 
The participant (or the joint annuitant, if the participant is 
deceased) may name or change the beneficiaries. This feature can be 
combined with any other annuity option.
    (2) Ten-year certain. This feature provides that, if the 
participant dies before annuity payments have been made for 10 years 
(120 payments), monthly payments will continue to be made to the 
beneficiaries selected by the participant until 120 payments have been 
made. This feature can be combined with any single life annuity option, 
but cannot be selected in conjunction with any joint life annuity 
option.
    (e) The Board can, from time to time, establish other types of 
annuities, other levels of survivor benefits, and other annuity 
features.
    (f) The Board can, from time to time, eliminate a type of annuity 
(except for those annuities described in paragraph (b) of this 
section), a survivor benefit level, or an annuity feature. However, if 
the Board does so, it must continue to allow participants to purchase 
annuities of the eliminated type or containing the eliminated feature 
for five years after the date the decision to eliminate the annuity 
type or feature is announced in the Federal Register.
    (g) Once an annuity has been purchased, the type of annuity, any 
annuity features, and the identity of the annuitant cannot be changed, 
and the annuity cannot be terminated.


Sec. 1650.13  Transfer of withdrawal payments.

    (a) At the participant's request, the TSP will transfer directly to 
an eligible retirement plan all or part of any withdrawal that is an 
``eligible rollover distribution,'' as defined in 26 U.S.C. 402(c)(4). 
A withdrawal method that is not an eligible rollover distribution 
cannot be transferred.
    (b) The following TSP withdrawal methods are considered eligible 
rollover distributions;
    (1) A single payment, as described in Sec. 1650.10;
    (2) Monthly payments, as described in Sec. 1650.11, where payments 
are expected to last less than 10 years at the time they begin, 
according to the following rules:
    (i) If the participant elects a number of monthly payments, the 
number of payments must be fewer than 120;
    (ii) If the participant elects a monthly payment amount, the 
amount, when divided into the participant's account balance as of the 
end of the month prior to the first payment, must yield a number less 
than 85.
    (3) A final single payment, as described in Sec. 1650.11(c).
    (c) The following withdrawal methods are not eligible rollover 
distributions:
    (1) Any annuity purchased by the TSP.
    (2) Any monthly payment that does not meet the rules set forth in 
paragraph (b)(2) of this section, including any monthly payment 
computed based on the Internal Revenue Service expected return multiple 
table V (see Sec. 1650.11(a)(3)).
    (3) Any minimum distribution payment or any portion of another 
payment which represents a minimum distribution payment.
    (d) An eligible retirement plan is a plan defined in 26 U.S.C. 
402(c)(8). There are three types of eligible retirement plans: an 
Individual Retirement Arrangement (IRA) (which can be either an 
individual retirement account or an individual retirement annuity), a 
plan qualified under 26 U.S.C. 401(a), and a plan described in 26 
U.S.C. 403(a). An IRA or other eligible retirement plan must be 
maintained in the United States, which means one of the 50 states or 
the District of Columbia.


Sec. 1650.14  Deferred withdrawal elections.

    (a) Subject to paragraph (b) of this section, a participant who 
separates from Government employment and elects to withdraw his or her 
account under one of the methods provided in Secs. 1650.10, 1650.11 or 
1650.12 may specify a future date (which shall be a month and year) for 
payment of the withdrawal.
    (b) The future date chosen under this section cannot be later than 
March of the year following the year in which the participant becomes 
age 70\1/2\. If that date has already passed when the participant makes 
an election, the participant cannot choose a future date.
    (c) If the withdrawal method chosen for future payment is a single 
payment or monthly payments (and the date specified for payment is more 
than four months in the future on the date the election form is 
processed), the participant will be notified before the date chosen 
that such payments are scheduled to begin. If the payments are eligible 
rollover distributions, the participant may choose to transfer all or 
part of the payments to an Individual Retirement Arrangement (IRA) or 
another eligible retirement plan.
    (d) If the withdrawal method chosen for future payment is an 
annuity (and the date specified for payment is more than four months in 
the future on the date the election form is processed), the participant 
will be notified before the date chosen. At that time, the participant 
will be sent information asking him or her to choose an annuity method, 
name a beneficiary (if the cash refund or 10-year certain feature is 
chosen), and provide any necessary spousal waiver or spousal 
information.


Sec. 1650.15  Required withdrawal date.

    (a) A participant must withdraw his or her account under 
Sec. 1650.10 or begin receiving payments under Secs. 1650.11 or 1650.12 
by April 1 of the year following the later of the year in which:
    (1) The participant turns 70\1/2\; or
    (2) The participant separates from Government employment. However, 
in no event will a withdrawal be required under this paragraph until 
1998.
    (b) A separated participant may elect to withdraw his or her 
account or begin receiving payments before the date described in 
paragraph (a) of this section, but is not required to do so.


Sec. 1650.16  Changes and cancellation of withdrawal election.

    (a) Basic rule. Subject to paragraphs (b) and (c) of this section 
and the rules relating to spouses' rights, a participant who has 
separated from Government employment can change his or her withdrawal 
election to any other withdrawal election or can cancel his or her 
withdrawal election if the change or cancellation can be processed 
before the withdrawal election is scheduled for disbursement.
    (b) Cutoff dates. For participants who have any part of their 
accounts invested in the Common Stock Index Investment Fund (C Fund) or 
the Fixed Income Index Investment Fund (F Fund), a withdrawal payment 
that has been approved is scheduled on the second-to-last business day 
of the month preceding the month the withdrawal payment is to be made. 
For participants whose accounts are invested entirely in the Government 
Securities Investment Fund (G Fund), a withdrawal payment that has been 
approved is scheduled by the close of business on the day before the 
monthly processing cycle in which payments are made.
    (c) Special Rule for C and F Fund Participants. Participants who 
have any part of their accounts invested in the C or F Funds may also 
change to another withdrawal method if the requested change can be 
processed before the close of business on the day before the monthly 
processing cycle in which payment will be made, and provided that under 
the new withdrawal method the amounts they have invested in the C or F 
Funds will still be withdrawn as originally scheduled from those Funds 
during the monthly processing cycle.

[[Page 42423]]

    (d) Example for participants whose accounts are invested in the C 
or F Funds. This example illustrates the operation of the rules set 
forth in paragraphs (b) and (c) of this section for participants who 
have a portion of their accounts invested in the C or F Funds.

    Example 1. Assume that such a participant wishes to withdraw the 
account by purchasing a single life annuity at the earliest possible 
date. The participant is married and has obtained the necessary 
waiver from her spouse for the purchase. All necessary forms have 
been submitted by the middle of April; thus, on the second-to-last 
business day in April, the annuity will be scheduled to be purchased 
in the May monthly processing cycle. However, in late April, the 
participant decides that she would rather receive the account in a 
single payment. The participant must submit a new Form TSP-70 
electing the new withdrawal method. (She does not need a new spousal 
waiver, since her spouse already waived his right to a survivor 
benefit.) In this case, the participant will be able to change to a 
single payment if her properly completed Form TSP-70 is received and 
processed by the TSP record keeper by the close of business on the 
day before the May monthly processing cycle. If that occurs, she 
will receive the single payment in May, instead of having the 
annuity purchased then.
    If, on the other hand, the participant wished to cancel her 
annuity purchase and leave her money in the Plan (or to change to a 
deferred withdrawal option), the TSP record keeper would have to be 
able to process her cancellation or change no later than the second-
to-last business day in April. If that did not occur, the annuity 
purchase would proceed in May.

Subpart C--Procedures for Post-employment Withdrawals


Sec. 1650.20  Information to be provided by agency.

    (a) Information to be provided to the TSP. When a TSP participant 
separates from Government employment, his or her employing agency must 
report the separation (including the date of separation) to the TSP 
record keeper. Until the TSP record keeper receives this information 
from the employing agency, it cannot process a post-employment 
withdrawal for the participant. A post-employment withdrawal cannot 
occur until at least 30 full calendar days have elapsed after the date 
of separation.
    (b) Information to be provided to the participant. When a TSP 
participant separates from Government employment, his or her employing 
agency must furnish the participant with the most recent copies of the 
TSP withdrawal booklet, withdrawal forms, and tax notice. The employing 
agency is also responsible for counseling participants concerning TSP 
withdrawals.


Sec. 1650.21  Accounts of more than $3,500.

    A participant whose account balance is more than $3,500 must submit 
a properly completed withdrawal election on Form TSP-70, Withdrawal 
Request, and any other form required by the TSP, in order to elect a 
post-employment withdrawal of his or her account balance.


Sec. 1650.22  Accounts of $3,500 or less.

    (a) Unless he or she has already submitted a complete withdrawal 
election and can be scheduled for payment, a participant whose account 
balance is $3,500 or less as of the month end following receipt of 
separation information from the employing agency will be sent a notice 
informing him or her that the account balance will be paid directly to 
the participant automatically in the third monthly processing cycle 
following the date of the notice if the account is still $3,500 or less 
on the date of payment. The notice will inform the participant that he 
or she can:
    (1) Choose to transfer all or part of the payment to an Individual 
Retirement Arrangement (IRA) or other eligible retirement plan;
    (2) Choose another withdrawal method (as described in subpart B of 
this part);
    (3) Choose to have the payment made directly to him or her as soon 
as possible; or
    (4) Choose to leave his or her money in the Plan.
    (b) If the participant does not take one of the actions described 
in paragraph (a) of this section, payment will be made as scheduled.
    (c) No spousal rights attach to any post-employment withdrawals 
made to a participant whose account balance is $3,500 or less.
    (d) If a participant's account balance is $3,500 or less after 
separation but later increases to more than $3,500, this section will 
cease to apply to that participant.
    (e) This section does not apply to accounts containing a balance of 
less than $5.00.

Subpart D--In-Service Withdrawals


Sec. 1650.30  Age-based withdrawals.

    (a) A participant who reached age 59\1/2\ and who has not separated 
from Government employment is eligible to withdraw all or a portion of 
his or her vested TSP account balance in a single payment. The amount 
of an age-based in-service withdrawal request must be at least $1,000.
    (b) The participant may request that the TSP transfer all or a 
portion of the withdrawal to an Individual Retirement Arrangement (IRA) 
or other eligible retirement plan. If a participant chooses to receive 
directly all or a portion of the withdrawal, the TSP will withhold for 
Federal income tax purposes 20 percent of all amounts paid directly to 
the participant.
    (c) A participant is permitted only one age-based in-service 
withdrawal.


Sec. 1650.31  Financial hardship withdrawals.

    (a) A participant who has not separated from Government employment 
and who demonstrates financial hardship is eligible to withdraw all or 
a portion of his or her own contributions to the TSP and their 
attributable earnings in a single payment to meet certain specified 
financial obligations. The amount of a financial hardship in-service 
withdrawal request must be at least $1,000. A participant will 
demonstrate financial hardship if he or she meets one or both of the 
following tests:
    (1) The participant's monthly cash flow is negative, i.e., net 
income is less than ordinary monthly household expenses based on TSP 
calculations; and/or
    (2) The participant has incurred or will incur within the next six 
months an extraordinary expense which he or she has not paid, for which 
there has not been and will not be reimbursement (as defined in 
Sec. 1650.1), and which cannot be met by his or her monthly cash flow 
over a period of six months. Extraordinary expenses are limited to the 
following four types:
    (i) Medical expenses payable by the participant and related to the 
treatment of the participant, the participant's spouse, or the 
participant's dependents. Generally, eligible expenses are those that 
would be eligible for deduction for Federal income tax purposes, but 
without regard to the Internal Revenue Service's (IRS) income 
limitations on deductions. However, the following IRS allowable 
expenses are excluded from TSP unreimbursed medical expenses: health 
insurance premiums and expenses associated with household improvements 
required as a result of a medical condition, illness, or injury to the 
participant, the participant's spouse, or the participant's dependents. 
These items are already taken into account elsewhere in the financial 
hardship determination.
    (ii) The cost of household improvements required as a result of a 
medical condition, illness or injury to the participant, the 
participant's spouse, or the participant's dependents, which is 
eligible for deduction as a medical expense for Federal income tax

[[Page 42424]]

purposes, but without regard to the IRS income limitations on 
deductions or the fair market value of the property. Household 
improvements are changes to the participant's living quarters or the 
installation of special equipment that is necessary to accommodate the 
circumstances of the incapacitated person;
    (iii) The cost of repairs or replacement resulting from casualty 
loss that would be eligible for deduction for Federal income tax 
purposes, but without regard to the IRS income limitations on 
deductions, fair market value of the property, or number of events. 
This is sudden property loss resulting from damage or destruction by 
fire, storm, or other casualty, or due to theft of property; and
    (iv) Legal costs, which are defined as attorney fees and court 
costs, associated with separation or divorce. Unpaid legal costs do not 
include alimony or child support payments or settlements a participant 
must pay a spouse or former spouse.
    (b) The amount of a participant's financial hardship withdrawal 
cannot exceed the smallest of the following:
    (1) The amount requested;
    (2) The amount in the participant's account that is equal to his or 
her own contributions and attributable earnings; or
    (3) The gross amount which would, subject to a request made under 
Sec. 1650.42(b), result in a net disbursement to the participant (after 
the mandatory Federal income tax withholding) of enough funds to both:
    (I) Make up the participant's negative cash flow for a period of 
six months in the case of a financial hardship withdrawal based on 
ordinary monthly household expenses; and
    (ii) Pay the extraordinary expense upon which the participant's 
financial hardship withdrawal is based. If the participant has a 
negative cash flow, the amount of the net disbursement based on 
extraordinary expense is equal to the amount of the extraordinary 
expense. If there is a positive cash flow, the amount is equal to the 
amount of the expense minus six times the amount of the calculated 
monthly positive cash flow.


Sec. 1650.32  Contributing to the TSP after an in-service withdrawal.

    (a) A participant's TSP contribution election will not be affected 
by an age-based in-service withdrawal; therefore, his or her TSP 
contributions will continue without interruption.
    (b) A participant who obtains a financial hardship in-service 
withdrawal may not contribute to the TSP for a period of six months, 
beginning with the first pay date 45 days after the date of the 
withdrawal; therefore, his or her TSP contributions (and any applicable 
matching contributions) will be discontinued by his or her agency upon 
notification by the TSP. A participant whose TSP contributions were 
discontinued by his or her agency because of a hardship withdrawal can 
resume contributions any time after expiration of the six month period 
by submitting a new TSP Election Form (TSP-1). If a participant 
voluntarily terminated TSP contributions, he or she can resume 
contributions at the expiration of the six-month period, or in the next 
open season during which the participant would be eligible to submit a 
new Form TSP-1, whichever is later.


Sec. 1650.33  Uniqueness of loans and withdrawals.

    An outstanding TSP loan cannot be converted into an in-service 
withdrawal, and vice versa; nor can an in-service withdrawal be 
returned or repaid.

Subpart E--Procedures for In-Service Withdrawals


Sec. 1650.40  How to obtain an age-based in-service withdrawal.

    To request an age-based in-service withdrawal, a participant must 
submit to the TSP Service Office a properly completed withdrawal 
election on Form TSP-75, Age-Based In-Service Withdrawal Request.


Sec. 1650.41  How to obtain a financial hardship in-service withdrawal.

    To request a financial hardship in-service withdrawal, a 
participant must submit to the TSP Service Office a properly completed 
request for withdrawal on Form TSP-76, Financial Hardship In-Service 
Withdrawal Request, a current earnings and leave statement, and 
supporting documentation for any extraordinary expenses listed on the 
application.


Sec. 1650.42  Taxes related to in-service withdrawals.

    (a) An in-service withdrawal is an eligible rollover distribution 
under the Internal Revenue Code (IRC), and the IRC requires that the 
Board withhold at least 20 percent for Federal income tax purposes from 
any portion of the withdrawal that is not directly transferred to an 
Individual Retirement Arrangement (IRA) or other eligible retirement 
plan. A participant who wants the TSP to transfer all or a portion of 
an in-service withdrawal to an IRA or other eligible retirement plan 
must submit to the TSP Service Office a properly completed Form TSP-75-
T, Transfer of In-Service Withdrawal. If the participant does not make 
a transfer election, the withdrawal will be disbursed in the form of a 
single payment minus the mandatory tax withholding. The mandatory 
withholding cannot be waived, although a participant can elect to have 
additional taxes withheld by submitting Form W-4P, Withholding 
Certificate for Pension or Annuity Payments, to the TSP Service Office.
    (b) If a participant applies for a financial hardship in-service 
withdrawal and does not make a transfer election, he or she can request 
the TSP to remove additional amounts from his or her TSP account so 
that the amount received after the mandatory 20 percent tax withholding 
is the amount requested (or for which the participant qualifies, if 
that amount is less than the amount requested). This option may be 
limited by the amount of employee contributions and attributable 
earnings available for withdrawal.

Subpart F--[Reserved]

Subpart G--Spousal Rights


Sec. 1650.60  Spousal rights pertaining to post-employment withdrawals.

    (a) The spousal rights described in this section and in 
Sec. 1650.61 only apply to post-employment withdrawals when the 
participant's vested TSP account balance exceeds $3,500.
    (b) The spouse of a CSRS participant is entitled to notice when the 
participant applies for a post-employment withdrawal, unless the 
participant was granted an exception under Sec. 1650.63 to the spouse 
notification requirement within one year of the date the withdrawal 
form is processed by the TSP. The participant must provide the TSP 
record keeper with the spouse's correct address. The TSP record keeper 
will send the required notice by first class mail to the most recent 
address provided by the participant.
    (c) The spouse of a FERS participant has a right to a joint and 
survivor annuity with a 50 percent survivor benefit, level payments, 
and no cash refund when the participant elects a post-employment 
withdrawal. The participant may make a different withdrawal election 
only if his or her spouse waives the right to this annuity. To show 
that the spouse has waived the right to this annuity, the participant 
must submit to the TSP record keeper Form TSP-70, Withdrawal Election, 
or Form TSP-11-C, Spouse Information and Waiver, signed by his or her 
spouse. Once a form containing the spouse's

[[Page 42425]]

waiver has been submitted to the TSP record keeper, the spouse's waiver 
is irrevocable for purposes of that form.


Sec. 1650.61  Spousal rights when a separated participant changes post-
employment withdrawal election.

    (a) The spouse of a CSRS participant is entitled to notice if the 
participant changes his or her post-employment withdrawal election, 
unless the participant was granted an exception under Sec. 1650.63 to 
the spouse notification requirement within one year of the date the 
form requesting the change is processed by the TSP. The participant 
must provide the TSP record keeper with the spouse's current address. 
The TSP record keeper will send the required notice by first class mail 
to the most recent address provided by the participant.
    (b) A married FERS participant who has made a post-employment 
withdrawal election and who wants to elect another withdrawal method 
(other than the annuity required in Sec. 1650.60(c)) must obtain a 
waiver from the spouse to whom he or she is married on the date the new 
withdrawal form is signed, unless:
    (1) That spouse previously signed a waiver of the required annuity 
in connection with an earlier post-employment withdrawal election made 
by the participant; or
    (2) The participant was granted within one year of the date on 
which the new withdrawal form is received by the TSP an exception under 
Sec. 1650.64 to the requirement to obtain that spouse's signature for 
an in-service or post-employment withdrawal election.
    Once a form containing the spouse's waiver has been submitted to 
the TSP record keeper, the spouse's consent is irrevocable for purposes 
of that form.


Sec. 1650.62  Spousal rights pertaining to in-service withdrawals.

    (a) The spousal rights described in this section apply to all in-
service withdrawals and do not depend on the amount of the 
participant's vested account balance or the amount requested to be 
withdrawn.
    (b) The spouse of a CSRS participant is entitled to notice when the 
participant applies for an in-service withdrawal, unless the 
participant was granted within one year of the date on which the 
withdrawal form is received by the TSP an exception to the notice 
requirement under Sec. 1650.63. The participant must provide the TSP 
record keeper with the spouse's correct address. The TSP record keeper 
will send the required notice by first class mail to the most recent 
address provided by the participant.
    (c) A participant covered by FERS must obtain the consent of his or 
her spouse before obtaining an in-service withdrawal unless the 
participant was granted, within one year of the date on which the new 
withdrawal form is received by the TSP, an exception to a signature 
requirement under Sec. 1650.64. To show spousal consent, a participant 
must submit to the TSP record keeper Form TSP-75, Age-Based In-Service 
Withdrawal Request, or Form TSP-76, Financial Hardship In-Service 
Withdrawal Request, signed by his or her spouse. Once a form containing 
the spouse's consent has been submitted to the TSP record keeper, the 
spouse's consent is irrevocable for purposes of that form.


Sec. 1650.63  Executive Director's exception to the spousal 
notification requirement.

    (a) Whenever this subpart requires the Executive Director to give 
notice of an action to the spouse of a participant, an exception to 
this requirement may be granted if the participant establishes to the 
satisfaction of the Executive Director that the spouse's whereabouts 
cannot be determined. A request for an exception to a notification 
requirement based on unknown whereabouts must be submitted to the 
Executive Director on Form TSP-16, Exception to Spousal Requirements, 
accompanied by one of the following:
    (1) A judicial determination (court order) stating that the 
spouse's whereabouts cannot be determined;
    (2) A police or governmental agency determination signed by the 
appropriate department or division head which states that the spouse's 
whereabouts cannot be determined; or
    (3) Statements by the participant and two other persons that meet 
the following requirements:
    (I) The participant's statement must give the full name of the 
spouse, declare the participant's inability to locate the spouse, and 
state the efforts the participant has made to locate the spouse. 
Examples of attempting to locate the spouse include, but are not 
limited to, checking with relatives and mutual friends or using 
telephone directories or directory assistance for the city of the 
spouse's last known address. Negative statements such as ``I have not 
seen nor heard from him'' or ``I have not had contact with her'' are 
not sufficient.
    (ii) The statements from two other persons must support the 
participant's statement that the participant does not know the 
whereabouts of his or her spouse.
    (iii) Each statement must be signed and dated and must state the 
following:

    I understand that a false statement or willful misrepresentation 
is punishable under Federal law (18 U.S.C. 1001) by a fine or 
imprisonment or both.

    (b) A withdrawal election received within one year of an approved 
exception may be processed so long as the spouse named on the form is 
the spouse for whom the exception has been approved.


Sec. 1650.64  Executive Director's exception to requirement to obtain 
the spouse's signature.

    (a) Wherever this subpart requires a spouse's consent to a loan or 
withdrawal or a waiver of the right to a survivor annuity, an exception 
to this requirement may be granted if the participant establishes to 
the satisfaction of the Executive Director that:
    (1) The spouse's whereabouts cannot be determined in accordance 
with the provisions of Sec. 1650.63; or
    (2) Due to exceptional circumstances, requiring the spouse's 
signature would be otherwise inappropriate.
    (i) An exception to the spousal signature requirement may be 
granted based on exceptional circumstances only when the participant 
presents a judicial determination (court order) or a governmental 
agency determination signed by the appropriate department or division 
head. A court order or a governmental agency determination must contain 
a finding or a recitation of such exceptional circumstances regarding 
the spouse as would warrant an exception to the signature requirement.
    (ii) Exceptional circumstances are narrowly construed and includes 
circumstances such as when a court order:
    (A) Indicates that the spouse and the participant have been 
maintaining separate residences with no financial relationship for 
three or more years;
    (B) Indicates that the spouse abandoned the participant, but for 
religious or similarly compelling reasons, the parties chose not to 
divorce; or
    (C) Expressly states that the participant may obtain a loan from 
his or her Thrift Savings Plan account or withdraw his or her Thrift 
Savings Plan account balance notwithstanding the absence of the 
spouse's signature.
    (b) A withdrawal election by a separated participant or an in-
service withdrawal request by a participant in the Federal service 
received within one year of an approved exception will be processed so 
long as the spouse named on the form is the spouse for whom the 
exception has been approved.

[[Page 42426]]

    (c) The requirements for establishing an exception for a withdrawal 
by a separated participant or an in-service withdrawal by a participant 
in the Federal service and the one-year period of validity of an 
approved exception also apply to exceptions for loans under 5 CFR 
1655.18.

[FR Doc. 97-20729 Filed 8-6-97; 8:45 am]
BILLING CODE 6760-01-P