[Federal Register Volume 63, Number 84 (Friday, May 1, 1998)]
[Rules and Regulations]
[Pages 24380-24381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11603]



[[Page 24379]]

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Part V





Federal Retirement Thrift Investment Board





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5 CFR Part 1605



Correction of Administrative Errors; Final Rule

Federal Register / Vol. 63, No. 84 / Friday, May 1, 1998 / Rules and 
Regulations

[[Page 24380]]



FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Part 1605


Correction of Administrative Errors

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Final rule.

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SUMMARY: The Executive Director of the Federal Retirement Thrift 
Investment Board (Board) is publishing a final rule adopting as final 
without change the revision of the Board's regulations concerning 
correction of administrative errors affecting Thrift Savings Plan (TSP) 
accounts. The rule provides for attribution of makeup contributions by 
a participant to the appropriate prior year in which the contributions 
should have been made but for the error. Such makeup contributions are 
permitted only if aggregation with other contributions made in (or with 
respect to) the appropriate prior year would not result in 
contributions in excess of the dollar limits under sections 402(g) and 
415(c) of the Internal Revenue Code (I.R.C.).

EFFECTIVE DATE: May 1, 1998.

FOR FURTHER INFORMATION CONTACT: Elizabeth S. Woodruff, Associate 
General Counsel, Federal Retirement Thrift Investment Board, 1250 H 
Street, NW, Washington, DC 20005; (202) 942-1661.

SUPPLEMENTARY INFORMATION: The Board published a final rule governing 
the correction of administrative errors in the Federal Register on 
December 24, 1996 (61 FR 68464). This rule revises the section of those 
regulations which limited TSP makeup contributions when a retroactive 
adjustment to an employee's pay included a correction for the 
employee's missed TSP contributions during the period of retroactivity. 
At the time the regulations were issued, the Board interpreted I.R.C. 
402(g) (26 U.S.C. 402(g)) and its discussions with the Internal Revenue 
Service (IRS) as requiring that such makeup contributions always be 
counted against the IRS deferral limit for the year in which they were 
actually made, rather than the limit for the year to which they were 
attributable.
    On June 25, 1997, however, the U.S. District Court for the Northern 
District of New York rejected, in Kahmann v. Reno, 967 F. Supp. 731 
(N.D.N.Y.), the Government's argument that I.R.C. 402(g) and the 
Board's derivative regulation prevented an employee from making TSP 
contributions erroneously denied by her agency in excess of the current 
year's section 402(g) limit. The court ordered the Government to permit 
the employee to make up missed contributions to the TSP applying the 
relevant prior years' section 402(g) limits.
    Accordingly, the Board published an interim regulation in the 
Federal Register on January 29, 1998 (61 FR 58973), calling for prior-
year attribution for makeup employee contributions to the TSP, 
consistent with the district court's holding and reasoning. The Board 
has received two written comments on the interim rule.
    The first commenter, the manager of a payroll office of a component 
of a Federal agency, suggested that the Board's interim rule was in 
conflict with IRS regulations. However, the Board also received a 
written comment from the IRS clarifying the scope of its earlier 
communications with the Board. Without addressing the Kahmann decision, 
the IRS nevertheless affirmed that the Board's interim regulation was 
not contrary to the provisions of the I.R.C. applicable to the TSP, in 
that the tax treatment of the TSP is set forth in I.R.C. 7701(j). 
Because section 7701(j) does not contain all of the same restrictions 
as are placed on a qualified cash or deferred arrangement (described in 
I.R.C. 401(k)), including the I.R.C. 402(g) limit on deferrals, the IRS 
agreed with the Board that a participant's makeup contributions to the 
TSP may properly be attributed to the year in which the contributions 
should have been made. According to the IRS, such makeup contributions 
to correct a prior year error would therefore not be includible in the 
TSP participant's current year income, provided that they do not cause 
the applicable limit (i.e., the limit under section 402(g) for the year 
to which the contributions are attributable) to be exceeded.
    Accordingly, the Board is adopting the provisions of the interim 
rule as a final rule without change.

Regulatory Flexibility Act

    I certify that this amendment will not have a significant economic 
impact on a substantial number of small entities. It will only affect 
TSP participants.

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. This regulation 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.

Submission to Congress and the General Accounting Office

    Under 5 U.S.C. 801(a)(1)(A), the Board submitted this rule and 
other required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States 
before the publication of this rule in today's Federal Register. This 
rule is not a major rule as defined in section 804(2) of title 5, 
United States Code.

List of Subjects in 5 CFR Part 1605

    Administrative practice and procedure, Employee benefit plans, 
Government employees, Pensions, Retirement.
Roger W. Mehle,
Executive Director, Federal Retirement Thrift Investment Board.

    For the reasons set forth in the preamble, part 1605 of chapter VI 
of title 5 of the Code of Federal Regulations is amended as follows:

PART 1605--CORRECTION OF ADMINISTRATIVE ERRORS

    1. The authority citation for Part 1605 continues to read as 
follows:

    Authority: 5 U.S.C. 8351 and 8474.

    2. Section 1605.2 is amended by revising paragraph (c)(5) to read 
as follows:


Sec. 1605.2  Makeup of missed or insufficient contributions.

* * * * *
    (c) * * *
    (5) When establishing a schedule of makeup contributions, the 
employing agency must review any schedule pro posed by the affected 
participant, as well as the participant's prior TSP contributions, if 
any, to determine whether the makeup contributions, when combined with 
prior contributions, would exceed the annual contribution limit(s) 
contained in sections 402(g) and 415 of the Internal Revenue Code 
(I.R.C.) (26 U.S.C. 402(g) and 415) for the prior year(s) with respect 
to which the contributions are being made.
    (i) The employing agency must not permit contributions that, when 
combined with prior contributions, would exceed the applicable annual

[[Page 24381]]

contribution limit(s) contained in I.R.C. 402(g) and 415.
    (ii) A schedule of makeup contributions may be suspended if a 
participant has insufficient net pay to permit the makeup 
contributions. If this happens, the period of suspension should not be 
counted against the maximum number of pay periods to which the 
participant is entitled in order to complete the schedule of makeup 
contributions.
* * * * *
    3. Section 1605.4 is amended by revising paragraph (c)(1) to read 
as follows:


Sec. 1605.4  Back pay awards and other retroactive pay adjustments.

* * * * *
    (c)(1) Makeup employee contributions required under paragraphs (a) 
and (b) of this section must be computed before the back pay or other 
retroactive pay adjustment is made. The makeup employee contributions 
must be deducted from the back pay or other retroactive pay adjustment 
and contributed to the TSP. However, contributions must not be made 
that would cause the participant to exceed the annual contribution 
limit(s) contained in sections 402(g) and 415 of the Internal Revenue 
Code (I.R.C.) (26 U.S.C. 402(g) and 415) for the prior year(s) with 
respect to which the contributions are being made, taking into 
consideration the TSP contributions already made in (or with respect 
to) that year.
* * * * *
[FR Doc. 98-11603 Filed 4-30-98; 8:45 am]
BILLING CODE 6760-01-P