Source: https://www.federalregister.gov/documents/2001/08/22/01-21075/correction-of-administrative-errors-lost-earnings-attributable-to-employing-agency-errors
Timestamp: 2018-04-27 07:50:40
Document Index: 398017792

Matched Legal Cases: ['arts 1605', '§\u20091605', '§\u20091605', '§\u20091605', '§\u20091605', '§\u20091605', 'art 1605', '§\u20091605', '§\u20091655', '§\u20091605', '§\u20091605', 'art 1650', '§\u20091605', '§\u20091620', 'art 1605', 'art 1605', 'art 1605', '§\u20091606', '§\u20091605', '§\u20091606']

Federal Register :: Correction of Administrative Errors; Lost Earnings Attributable to Employing Agency Errors
A Rule by the Federal Retirement Thrift Investment Board on 08/22/2001
44275-44285 (11 pages)
List of Subjects in 5 CFR Parts 1605 and 1606
https://www.federalregister.gov/d/01-21075 https://www.federalregister.gov/d/01-21075
The Executive Director of the Federal Retirement Thrift Investment Board (Board) is amending the Board's regulations describing how an administrative error will be corrected to incorporate changes required by the Federal Erroneous Retirement Coverage Corrections Act (FERCCA). These amendments also explain changes in the TSP record keeping system which were implemented on May 1, 2001.
Salomon Gomez on (202) 942-1661, Patrick J. Forrest on (202) 942-1659, or Merritt A. Willing on (202) 942-1666, FAX (202) 942-1676
The Board administers the Thrift Savings Plan (TSP), which was established by the Federal Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335, 100 Stat. 514, 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, similar to a cash or deferred arrangement established under section 401(k) of the Internal Revenue Code. Sums in the Thrift Savings Plan are held in trust for TSP participants.
On September 19, 2000, Congress enacted the Federal Erroneous Retirement Coverage Corrections Act, title II of Public Law 106-265, 114 Stat. 762, which permits Federal employees and annuitants who were placed in the wrong retirement system to choose between FERS and CSRS Offset. The Office of Personnel Management (OPM) has primary responsibility for implementing FERCCA. On March 19, 2001, OPM published an interim rule in the Federal Register (66 FR 15606) implementing its obligations under FERCCA.
On April 19, 2001, the Board published a proposed rule with a request for comments in the Federal Register (66 FR 20090) regarding its obligations under FERCCA. The Board received comments from four TSP participants and from two agencies.
The first participant observed that the proposed regulation explains how participants who were misclassified as CSRS or FERS will be corrected under FERCCA but does not explain how participants who were misclassified as FICA only will be corrected. The Board has therefore clarified this language in the final regulation by adding a new paragraph (d) to section 1605.14.
The second participant questioned how the misclassification of his retirement coverage will be corrected. However, the Board has no role in the correction of misclassification errors, and these questions must be addressed either to the employing agency or to OPM.
The third participant questioned how a retroactive TSP contribution will affect his annuity if he chooses to be reclassified as FERS. OPM, not the Board, manages the annuity portion of the Federal retirement package and this question must be addressed to OPM. He also asked whether a participant, upon being reclassified as FERS, may choose to make up contributions only for a portion of the period of misclassification, e.g., for 1988 through 1999 with no contributions in 2000, and what rate of return will be paid.
Any participant who elects FERS coverage will have the same election opportunities as those afforded correctly covered FERS employees. For example, contribution elections to begin or change the amount of TSP contributions may be made during an open season and will become effective the last month of that open season. See 5 CFR 1600.13(b). Within these restrictions, a participant can make up TSP contributions for specific periods of time of less than a year.
In addition, as provided in § 1605.11(c)(5), makeup contributions are invested in accordance with the participant's contribution allocation of record at the time the makeup contributions are posted to the account; if a participant does not have a contribution allocation on file for that date, the makeup contributions will be invested in the Government Securities Investment (G) Fund. Lost earnings on makeup contributions, however, are based upon the participant's contribution allocation of record for the time the contribution would have been made had the participant been correctly covered by FERS, or, if no contribution allocation is on record for that date, on the G Fund rate.
The third commenter asked whether a participant must file an amended tax return if he or she makes retroactive contributions. Makeup contributions for FERCCA participants are treated as tax-deferred compensation for the year in which they are made. Thus, makeup contributions will reduce taxable income for the year in which they are actually made and not for the year(s) in which they should have been made. (However, if the makeup contributions should have been made in a prior year, they are subject to that year's Internal Revenue Service elective deferral limit and not the current year's limit. 5 CFR 1605.11(c)(6).)
A fourth participant disagreed with the requirement in § 1605.16(a)(2) that contribution allocation errors occurring before May 1, 2001, may be corrected only if they are discovered within 30 days after the error occurs. However, as the Board noted in promulgating prior regulations, 65 FR 19863, participants are expected to be diligent in discovering errors in their accounts.
One agency, the Department of Defense, Civilian Personnel Management Services, requested that the Board clarify proposed § 1605.13(d) which permits a participant who prevails in a back pay case to return contributions that were previously withdrawn. Specifically, the agency asked that the Board clarify whether these contributions will be reinvested based upon the participant's contribution allocation at the time of separation or the allocation at the time the account balance is restored. The Board has clarified this paragraph by adding language that makes it clear that returned contributions will be reinvested based upon the allocation of record at the time of separation. If the participant desires a different allocation, he or she may file a Form TSP-50 to request an interfund transfer.
The agency also asks whether a participant who prevails in a back pay case and who chooses to return contributions that were previously withdrawn could also choose to reinstate a loan which was previously declared a taxable distribution. The Board has clarified this paragraph by adding a new paragraph (e) to § 1605.13 making it clear that such a participant also may reinstate a loan.
Comments were also received from a second agency, the Defense Finance and Accounting Service (DFAS). DFAS was concerned with whether the Board will continue its practice of issuing advice to agencies in the form of TSP Bulletins and cover FERCCA corrections. The Board does indeed intend to continue to issue TSP Bulletins for use by agencies.
DFAS also asks for clarification of the “as of date” and distinction between the “attributable pay date.” Both terms are defined in § 1605.1. The term “as of date” is used in part 1605 to explain the procedures for reporting a late contribution, as in paragraphs 1605.11(b)(1) and (c)(4). In contrast, the Start Printed Page 44277term “attributable pay date” is used only in connection with negative adjustments, as in paragraphs 1605.12(b)(1) and (c)(2).
Section 1605.14(a)(1) allows a CSRS participant who was misclassified as FERS to choose whether the employee contributions that were made during the period of misclassification should remain in the account or be returned to the participant. DFAS asks whether the Board intends to develop a new form for this transaction. The Board does not believe that a new universal form, applicable to all agencies, is required. This is a transaction between the affected participant and his or her payroll office. Agencies will have to devise a method by which to record their participants' choices, but they do not need to advise the TSP.
DFAS also asks why the FERS participant who was erroneously classified as CSRS does not have a similar choice whether to leave his or her employee contributions in the TSP or to remove them. This determination, however, was made by Congress when it enacted FERCCA and not by the Board. The distinction is based upon the expectation that FERS employees will need their TSP contributions to make up part of their retirement income, while that is not necessarily the case with CSRS employees.
Finally, DFAS objects to the requirement, in § 1605.14(c)(3), that the TSP declare an outstanding loan to be a distribution (and therefore taxable), see § 1655.13, when a participant who was misclassified as either FERS or CSRS is reclassified as FICA only. However, FERSA does not allow persons whose retirement coverage is FICA only to participate in the TSP. Thus, these persons cannot have a TSP account or make loan repayments to a TSP account.
Other than the changes to §§ 1605.13 and 1605.14, discussed above, the Board adopts the provisions of the proposed rule as the final rule.
Pursuant to 5 U.S.C. 801(a)(1)(A), the Board submitted a report containing these rules and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this rule in today's Federal Register. These rules are not major rules as defined at 5 U.S.C. 804(2).
For the reasons set out in the preamble, 5 CFR chapter VI is amended as set forth below:
FERCCA correction means the correction of a retirement coverage error pursuant to the Federal Erroneous Retirement Coverage Corrections Act, title II, Public Law 106-265, 114 Stat. 770.
Late contributions means: Employee contributions that were timely deducted from a participant's basic pay but were not timely reported to the TSP record keeper for investment; employee contributions that were timely reported to the TSP but were not posted to the participant's account by the TSP because the payment record on which they were submitted contained errors; and attributable agency matching Start Printed Page 44278contributions and agency automatic (1%) contributions that were not timely reported.
(b) Employer makeup contributions. If an employing agency has failed to make agency automatic (1%) contributions that are required under 5 U.S.C. 8432(c)(1)(A), agency matching contributions that are required under section 8432(c)(2), or conversion contributions that are required under section 8432(c)(3), the following rules apply:
(c) Employee makeup contributions. Within 30 days of receiving information from his or her employing agency indicating that the employing agency acknowledges that an error has occurred which has caused less in employee contributions to be made to the participant's account than should have been made, a participant may elect to establish a schedule of makeup contributions to replace the missed contributions through future payroll deductions. Employee makeup contributions can be made in addition to any TSP contributions that the participant is otherwise entitled to make. The following rules apply to employee makeup contributions:
(6) Employee makeup contributions will not be considered in applying the maximum amount per pay period that a participant is permitted to contribute to the TSP, but will be included for purposes of applying the annual limits contained in sections 402(g) and 415(c) of the Internal Revenue Code (I.R.C.) (26 U.S.C. 402(g) and 415(c)). For purposes of applying the annual limits of sections 402(g) and 415(c) of the I.R.C., employee makeup contributions will be applied against the limit for the year in which the contributions should have been made (i.e., the year of the “as of” date).
(ii) The employing agency must not permit contributions that, when combined with prior contributions, would exceed the applicable annual contribution limits contained in sections 402(g) and 415(c) of the I.R.C.Start Printed Page 44279
(1) To remove money from a participant's account, the employing agency must submit, for each attributable pay date involved, a negative adjustment record stating the amount of the erroneous contribution being removed, the attributable pay date with respect to which the erroneous contribution was made, and the source(s) of the contributions. The TSP record keeper will derive the investment of the negative adjustment from the allocation of any contribution which was reported for the attributable pay date. If no contribution was submitted for the attributable pay date, the negative adjustment will not be processed.
(4) If all employee contributions are removed from a participant's account under the rules set forth in this section, the participant may choose to leave any earnings in the account unless he or she was not eligible to have an account in the TSP at the time earnings were credited to the account, and remains ineligible. If the participant was ineligible for a TSP account (and remains ineligible), the earnings will be paid to the participant. If earnings remain in the account, upon the participant's separation from Government service, they will be subject to the same withdrawal rules as apply to any other funds in a participant's account. Start Printed Page 44280
(2) The amount computed by application of the rules in this section will be removed from the participant's account pro rata from all investment funds, by source, based on the allocation of the participant's most recent month-end valued account balance; and
(ii) Instead of making contributions for the period of separation in accordance with the reinstated contribution election, the participant may submit a new contribution election for any open season(s) that occurred during the period of separation;
(2) Must not cause the participant to exceed the annual contribution limit(s) contained in sections 402(g) and 415(c) of the I.R.C. (26 U.S.C. 402(g) and 415(c)) for the 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; and
(d) Prior withdrawal of TSP account. If a participant has withdrawn his or her TSP account, other than by purchasing an annuity, and the separation from Government employment upon which the withdrawal was based is reversed, Start Printed Page 44281resulting in reinstatement of the participant without a break in service, the participant will have the option to restore the amount withdrawn to his or her TSP account. The right to restore the withdrawn funds will expire if notice is not provided by the participant to the Board within 90 days of reinstatement. If the participant returns the funds that were withdrawn, they will be posted to the participant's account based on his or her contribution allocation of record at the time of separation. If no contribution allocation is on file, the contributions will be invested in the G Fund. No lost earnings will be paid on any restored funds.
(e) Participants who are covered by paragraph (d) of this section and who elect to return funds that were withdrawn may also elect to reinstate a loan which was previously declared to be a taxable distribution.
(3) If the employing agency fails to submit a negative adjustment record under the procedures of § 1605.12(b) to remove employer contributions, after all such contributions have been in the participant's account for more than one year the TSP recordkeeper will remove them from the account and use such amounts to offset TSP administrative expenses.
(b) If a FERS participant is misclassified by an employing agency as a CSRS participant, when the misclassification is corrected:
(2) Employer contributions in the account are subject to the rules in paragraphs (a)(2) and (a)(3) of this section.
(3) The participant will be deemed to be separated from Federal service for all TSP purposes. If the participant has an outstanding loan, it will be subject to the provisions of 5 CFR 1655.13. The participant may make a TSP post-employment withdrawal election pursuant to 5 CFR part 1650, subpart B, and the withdrawal will be subject to the provisions of 5 CFR 1650.60(b).
(d) If a FERS or CSRS participant is misclassified by an employing agency as FICA only, when the misclassification is corrected the participant may, pursuant to § 1605.11 of this part, elect to make up contributions that he or she would have been eligible to make as a FERS or CSRS participant during the period of misclassification. If the participant makes up employee contributions, the rules in paragraph (b)(5) of this section apply. If the participant is corrected to FERS, the rules in paragraphs (b)(3) and (b)(4) of this section also apply.
(2) A participant may file a claim for correction of a contribution allocation error made before May 1, 2001, with his or her employing agency no later than 30 days after the participant receives a TSP participant statement first reflecting the error. The agency must promptly correct such errors.Start Printed Page 44282
(2) Errors that warrant the crediting of earnings or charging of investment losses under paragraph (a)(1) of this section include, but are not limited to:
(b) Other corrections. The Executive Director may, in his discretion and consistent with the requirements of applicable law, correct any other errors not specifically addressed in this section, including payment of lost earnings, if the Executive Director determines that the correction would serve the interests of justice and fairness and equity among all participants of the TSP.
(3) If a participant or beneficiary fails to file a claim for correction of contribution allocations or interfund transfers in a timely manner, the Board Start Printed Page 44283or TSP record keeper may nevertheless, in its sound discretion, correct any such error that is brought to its attention.
(a) Applicability. This section applies to employees who meet the conditions specified at § 1620.40 of this chapter and who are eligible to receive or to make up contributions missed as a result of military service.
Authority: 5 U.S.C. 8432a, 8474(b)(3), and (c)(1). Section 1606.5 also issued under Title II, Pub. L. 106-265, 114 Stat. 770.
FERCCA correction means the correction of a retirement coverage error pursuant to the Federal Erroneous Retirement Coverage Corrections Act, Public Law 106-265, 114 Stat. 770.
Late contributions means employee contributions that were timely deducted from a participant's basic pay but were not timely reported to the TSP record keeper for investment; employee contributions that were timely reported to the TSP but were not posted to the participant's account by the TSP because the payment record on which they were submitted contained errors; and attributable agency matching contributions and agency automatic (1%) contributions that were not timely reported.
(1) The employing agency must, for each pay period involved, submit to the TSP record keeper a lost earnings record indicating the pay date for which the contributions would have been made had the error not occurred (i.e., the beginning date), the investment fund to Start Printed Page 44284which the contributions would have been deposited had the error not occurred if the beginning date on the record was before May 1, 2001, the amount of the contributions, and the pay date for which the contributions were actually made. If the beginning date on the record was on or after May 1, 2001, the TSP record keeper will use the contribution allocation of record for the beginning date and calculate lost earnings;
(d) Except for employee contributions received in connection with a FERCCA correction, if a participant receives pay from which employee contributions should have been deducted but, as the result of employing agency error, all or any part of those deductions were not made, the makeup employee contributions will not be subject to lost earnings even if the participant makes up the employee contributions pursuant to part 1605 of this chapter. However, where the participant makes up the employee contributions pursuant to part 1605 of this chapter, the agency matching contributions associated with the makeup employee contributions (which must be made in accordance with part 1605 of this chapter) will be subject to lost earnings. With respect to such makeup agency matching contributions the procedures described in paragraphs (a)(1) through (a)(4) of this section will apply.
(b) The TSP record keeper will compute the amount of lost earnings associated with each lost earnings record submitted by the employing agency pursuant to paragraph (a)(1) of this section. The TSP record keeper will not take into consideration any interfund transfers;
(c) Where the lost earnings computed in accordance with paragraph (a)(2) of this section are positive, the TSP record keeper will charge the amount of lost earnings computed to the appropriate employing agency and will credit that amount to the account of the participant involved. If the earnings computed are negative, the amount computed will be removed from the participant's account and used to offset TSP administrative expenses; and
6. Section 1606.8 is revised to read as follows:
(b) The procedures applicable to lost earnings records submitted by employing agencies which are set forth in § 1606.5(a)(2) through (a)(4) will be applied to lost earnings records generated by the TSP record keeper pursuant to paragraph (a)(1) of this section.
7. Section 1606.9 is amended by revising paragraph (a)(3) to read as follows:
8. Section 1606.11 is amended by revising paragraphs (c), (d), and (e) and by adding a new paragraph (f) to read as follows:
(c) Where this part requires the employing agency to indicate on a lost earnings record the investment fund to which a contribution would have been deposited had an employing agency error not occurred, that determination must be made solely on the basis of a properly completed allocation election that was accepted by the employing Start Printed Page 44285agency before the date the contribution should have been made, and that was still in effect as of that date. Where no such allocation election was in effect as of the date the contribution would have been made had the error not occurred, the lost earnings record submitted by the employing agency must indicate that the contributions should have been made to the G Fund.
(f) Lost earnings records that contain contributions for which lost earnings must be determined at the G Fund rate of return pursuant to §§ 1605.22(a)(4) or 1605.41(a)(3) of this chapter must be accompanied by the special Journal Voucher, Form TSP-2-EG.
9. Section 1606.13 is amended by removing paragraph (g), by removing the semicolon at the end of paragraphs (d) and (e) and adding a period in its place, and by revising paragraphs (a), (b), and (c) to read as follows:
10. Section 1606.15 is amended by revising paragraph (a) to read as follows:
(a) Participant claims for lost earnings pursuant to § 1606.14 must be filed within six months of the participant's receipt of the earliest of a TSP participant statement, TSP loan statement, employing agency earnings and leave statement, or any other document that indicates that an employing agency error has affected the participant's TSP account.
[FR Doc. 01-21075 Filed 8-21-01; 8:45 am]