FERSGUIDE, LLC.
11357 Nuckols Road, PMB 134
Glen Allen, VA 23059
Thrift Savings Plan
Director of Participant Operations and Policy
77 K Street NE
Washington, DC 20002
RE: Implementation of H.R. 2146
July 13, 2015
Dear Mr. Emswiler,
If you recall, I wrote to you in April 2014 regarding an error in the language in TSP-536.
I am writing to you now regarding the passage of H.R. 2146 into law on 6/29/2015. I was pleased to see that the TSP had a press release soon thereafter on its website:
Information for Federal Public Safety Employees (Updated)— (July 8, 2015) P.L. 114-26, the Defending Public Safety Employees' Retirement Act, was signed by the President on June 29, 2015. This bill amends the Internal Revenue Code to allow specified federal law enforcement officers, customs and border protection officers, federal firefighters, and air traffic controllers who separate from service in or after the year they turn age 50 to make a withdrawal from the TSP without incurring a 10% early withdrawal penalty. We are currently reviewing the law and how it applies to the TSP accounts of public safety officers. We expect to publish information on our website in advance of the law’s December 31, 2015 effective date.
Many of my clients are anxious to see how the TSP implements these changes into its participant information system. There are three main areas of concern:
1)Will the TSP issue a participant (covered under H.R. 2146) a Form 1099 indicating Code 2 “Early distribution, exception applies (under age 59½)?” Will the TSP be able to secure personnel information from OPM to determine which participants are covered under H.R. 2146? Should covered participants send the TSP personnel information that identifies their coverage?
2)H.R. 2146 also allows covered annuitants who retired in their 50th year of age to change from a life-expectancy method to regular monthly payments, without the election change triggering a penalty. How is the TSP going to handle this? Remember, most all of these participants indicated on their TSP-70 that they wanted 100% of their account balance used for monthly payments. Now, these same participants are allowed regular penalty-free withdrawals. I highly encourage the TSP to allow these covered annuitant participants to “re-select” a new TSP-70 to afford them the opportunity for a lump-sum withdrawal.
3)“Siamesed” Traditional and Roth TSP Accounts: Although not directly mentioned by H.R. 2146, the TSP has a significant issue with Roth TSP accounts and Special Provisions employees. As you know, the TSP will not allow a participant to withdraw funds solely from their Traditional or Roth TSP accounts. The TSP draws funds ratably from both accounts. You have to be age 59½ in order to withdraw from a Roth TSP on a tax-free basis. These participants are stuck! They can’t leave the TSP and enjoy the benefits of H.R. 2146, yet if they stay, they pay tax twice on their Roth. The TSP also will not allow a participant to transfer just their Roth TSP to another custodian. The TSP must examine this policy and provide a remedy.
With regard to the earlier matter concerning the wording in TSP-536 concerning the length of time a participant must use the life-expectancy withdrawal method, it appears that TSP-536 has still not been updated to reflect clearer language regarding this matter. In your letter of 4/29/2014 to me, you stated that, “I agree that this statement could lead a participant who started receiving monthly payments at age 57 to believe that they could change their monthly payments at age 59½.” You further stated that you would, “ensure this is corrected in future TSP publications.” I’m just holding you to your word, as many Special Provisions FERS employees retire after 25 years of service before age 50 and are not covered by H.R. 2146 and need accurate direction.
Unless the TSP starts to do a better job making funds more accessible to its participants, I foresee a larger and larger percentage of TSP participants leaving the TSP as soon as they reach age 59½. As a practicing C.P.A., that is certainly the advice I give my clients and the advice that I share with thousands of FERSGUIDE subscribers.
The idea that a participant is limited to one lump-sum withdrawal is ridiculous; or that participants must receive their funds in the form of monthly payments is equally ridiculous. Nothing in the Internal Revenue Code prevents the TSP from adopting better participant access methods. The restriction to a single lump sum and the monthly-payment requirement are both TSP made-up rules, not IRS rules. They can be changed. Yes, costs would increase, but so would your participation persistency.
I hope that you can guide the TSP into becoming a more-flexible and responsive custodian. As the size of the federal workforce (both Civilian and Uniformed Services) begins to shrink in the coming years, and on-board TSP participants jettison the TSP due to its restrictive fund-access policies, the TSP will find it harder and harder to keep costs down as there will be fewer participants to cover the costs. I think that you will find many more age 59½+ participants would be willing to stay at the TSP if they had reasonable access to their funds.
If there is anything that I can do to assist the TSP in the implementation of H.R. 2146, please feel free to contact me.
Sincerely,
J. Daniel Jamison, C.P.A.
TSP Participant – FBI Special Agent (ret.)
804-980-0579
H.R. 2146, FERSGUIDE, LLC, Page-1